<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, For Use of the Com-
[ ] Definitive proxy statement mission Only (as permitted by Rule
[ ] Definitive additional materials 14a-6(e)(2))
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
HILCOAST DEVELOPMENT CORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
<TABLE>
<S> <C>
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value per Share
- ---------------------------------------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
942,651
- ---------------------------------------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:
$6.00
- ---------------------------------------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$6,722,906
- ---------------------------------------------------------------------------------------------------------------
(5) Total fee paid:
$1,345.00
- ---------------------------------------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the
form or schedule and the date of its filing.
(1) Amount previously paid:
- ---------------------------------------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- ---------------------------------------------------------------------------------------------------------------
(3) Filing party:
- ---------------------------------------------------------------------------------------------------------------
(4) Date Filed:
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
HILCOAST DEVELOPMENT CORP.
19146 Lyons Road
Boca Raton, Florida 33434
-------------------------
NOTICE OF SPECIAL MEETING OF STOCK HOLDERS
To Be Held on January 30, 1997
-------------------------
To the Stockholders
of Hilcoast Development Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Hilcoast Development Corp., a Delaware corporation (the "Company"), will be
held at 11:00 a.m., local time, on Thursday, January 30, 1997, at the Omni
Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, for the following
purposes:
1. To consider and vote upon the approval and adoption of an
Agreement and Plan of Merger (the "Merger Agreement"),
providing for the merger (the "Merger") with and into the
Company of FLA Acquisition Corp. ("Mergerco"), a Delaware
corporation formed by the Company's Chairman of the Board and
certain other stockholders for the purpose of consummating the
Merger, with the Company being the surviving corporation. In
the Merger, each outstanding share of the Company's Common
Stock, $.01 par value (other than shares held by Mergerco, any
of its subsidiaries or any dissenting stockholders who perfect
their statutory appraisal rights under Delaware law), will be
converted into the right to receive $6.00 in cash, without
interest. The Merger Agreement is more fully described in the
accompanying Proxy Statement and is attached as Exhibit A to
the Proxy Statement.
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Tuesday,
December 10, 1996 as the record date for the determination of stockholders
entitled to vote at the meeting and, accordingly, only stockholders of record
at the close of business on such date are entitled to notice of and to vote at
the meeting and any adjournment thereof. The stock transfer books of the
Company will not be closed prior to the meeting.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions
of Section 262 of the Delaware General Corporation Law will have the right if
the Merger is consummated to dissent and to seek appraisal of the fair market
value of their shares. See "Rights of Dissenting Stockholders" in the
accompanying Proxy Statement, and Exhibit C thereto, for a description of the
procedures required to be followed in order to exercise properly dissenters'
rights.
In order to assure that your vote will be counted, please complete,
date, sign and return the enclosed proxy promptly in the enclosed prepaid
envelope whether or not you plan to attend the meeting. Your proxy may be
revoked at any time before it is voted, by filing with the Secretary of the
Company a written revocation, by submitting a proxy bearing a later date, or by
attending and voting in person at the meeting.
THE BOARD OF DIRECTORS OF THE COMPANY (OTHER THAN THE CHAIRMAN, WHO
ABSTAINED FROM SUCH VOTE) HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Orilla F. Floyd
Secretary
Boca Raton, Florida
January __, 1997
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
<PAGE> 3
HILCOAST DEVELOPMENT CORP.
19146 Lyons Road
Boca Raton, Florida 33434
-------------------------
PROXY STATEMENT
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on January 30, 1997
This Proxy Statement (this "Proxy Statement") is furnished in
connection with the solicitation by the Board of Directors of Hilcoast
Development Corp., a Delaware corporation (the "Company"), of proxies from the
holders of shares (the "Shares") of the Company's Common Stock, par value $.01
per share (the "Common Stock"), for use at a Special Meeting of Stockholders of
the Company to be held at 11:00 a.m. local time, on Thursday, January 30, 1997,
at the Omni Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, or at
any adjournment(s) or postponement(s) thereof (the "Meeting"), pursuant to the
enclosed Notice of Special Meeting of Stockholders. Only holders of record of
Shares at the close of business on Tuesday, December 10, 1996 (the "Record
Date") are entitled to notice of and to vote at the Meeting. The approximate
date that this Proxy Statement and the enclosed proxy are first being sent to
stockholders is January __, 1997. Stockholders should review the information
provided herein in conjunction with the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1996, as amended, and the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1996,
copies of which are attached as Exhibits D and E, respectively, to this Proxy
Statement, and other information incorporated herein by reference. See
"Documents Incorporated by Reference." The Company's principal executive
offices are located at 19146 Lyons Road, Boca Raton, Florida 33434, and its
telephone number is (561) 487-9630.
At the Meeting, the stockholders of the Company will be asked to
consider and vote upon the approval and adoption of the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of November 21, 1996 between the
Company and FLA Acquisition Corp. ("Mergerco"), a Delaware corporation, a copy
of which is attached to this Proxy Statement as Exhibit A. The Merger
Agreement provides for the merger (the "Merger") of Mergerco, with and into the
Company, with the Company being the surviving corporation (the "Surviving
Corporation"). Pursuant to the Merger Agreement, each outstanding Share (other
than Shares held by Mergerco or any subsidiary of Mergerco, all of which will
be cancelled, and other than shares held by dissenting stockholders who perfect
their statutory appraisal rights under Delaware law), will be converted into
the right to receive $6.00 in cash, without interest (the "Merger
Consideration"). Mergerco has been formed by the Company's Chairman of the
Board, Chief Executive Officer and largest stockholder, H. Irwin Levy, and the
Company's next largest stockholders, Maurice A. Halperin and Barry S. Halperin
(together, "Messrs. Halperin"). The effect of the Merger will be to convert
the Company from a publicly held to a privately held corporation wholly owned
by Mr. Levy and Messrs. Halperin, while providing to the public stockholders a
cash price for their Shares representing a premium over market prices
prevailing prior to the announcement of the Merger. See "Special Factors -
Background of the Merger" and "Market for the Company's Common Stock and
Related Stockholder Matters."
--------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 4
Consummation of the Merger is subject to certain conditions, including
approval by the holders of a majority of the outstanding Shares and the
exercise of rights to appraisal under the Delaware General Corporation Law by
holders of no more than 5% of the outstanding Shares. As of the Record Date,
Mr. Levy and Messrs. Halperin collectively held 60.1% of the outstanding
Common Stock. This voting interest will enable them to cast a sufficient
number of votes to approve and adopt the Merger Agreement without the
affirmative vote of any other stockholder. It is contemplated that Mergerco
will finance its obligations pursuant to the Merger with loans from Mr. Levy and
Messrs. Halperin, who will use their personal funds and obtain additional funds
through borrowings from an institutional lender to make such loans. See
"Financing of the Merger." For a discussion of the interests of certain
officers, directors and employees of the Company and its subsidiaries in this
transaction, see "Special Factors - Interests of Certain Persons in the
Merger."
A Special Committee (the "Special Committee") was appointed by the
Board of Directors, consisting of one director who is neither an employee of,
nor holds a substantial stock interest in, the Company, to review the terms of
the Merger Agreement and to report to the Board regarding the fairness of the
Merger to the Company's stockholders. Subsequent to its receipt of the
fairness opinion described below, the Special Committee concluded that the
Merger is fair to and in the best interest of the Company's public stockholders
and recommended that the Board approve the Merger Agreement. At a meeting held
on November 12, 1996, the Board (other than Mr. Levy, who abstained from such
vote) unanimously approved the Merger Agreement, concluded that the Merger is
fair to and in the best interest of the Company's public stockholders and
recommended that the Company's stockholders approve and adopt the Merger
Agreement. The Special Committee and the Board, in reaching their respective
decisions, considered a number of factors, including the opinion of Patricof &
Co. Capital Corp. ("Patricof"), an investment banking firm engaged by the
Special Committee as its exclusive financial advisor, that the Merger
Consideration is fair to the Company's public stockholders from a financial
point of view. See "Special Factors - Recommendation of the Special Committee
and Board of Directors; Fairness of the Merger" and "- Opinion of Financial
Advisor."
Mr. Levy, the Chairman of the Board and Chief Executive Officer of the
Company, is the organizer of Mergerco and immediately prior to the
effectiveness of the Merger will acquire approximately 58.8% of the equity of
Mergerco. Mr. Levy beneficially owns 834,637 Shares of the Company's Common
Stock (approximately 35.3% of the outstanding Shares). Immediately prior to
the effectiveness of the Merger, Messrs. Halperin will collectively acquire
approximately 41.2% of the equity of Mergerco. Maurice A. Halperin and Barry S.
Halperin share voting and dispositive power with respect to the Shares owned by
each other. Together, Messrs. Halperin beneficially own 585,032 Shares of the
Company's Common Stock (approximately 24.8% of the outstanding Shares).
Following the effectiveness of the Merger, Mr. Levy will own 58.8% of the
common stock of the Surviving Corporation, and Messrs. Halperin will
collectively own 41.2%. Such ownership will arise from the conversion, upon
the consummation of the Merger, of all of the outstanding common stock of
Mergerco into all of the outstanding common stock of the Surviving Corporation.
See "Information Concerning Mergerco," "Information Concerning Mr. Levy" and
"Information Concerning Messrs. Halperin."
The Merger Agreement provides that, other than Mr. Levy, none of the
current members of the Company's Board of Directors will be the initial
directors of the Surviving Corporation. The Merger Agreement also provides
that, with the exception of Mr. Levy who will serve as president, none of the
current officers of the Company will be the initial officers of the Surviving
Corporation.
If the Merger is not consummated for any reason, the Company expects
that the business of the Company will be conducted generally in the same manner
as it has been conducted heretofore (see "Special Factors-Reasons for the
Merger"), and the Board of Directors elected at the Company's December 18, 1995
Annual Meeting of Stockholders will remain in office.
All information contained in this Proxy Statement concerning Mergerco,
Mr. Levy and Messrs. Halperin, the financing to be obtained for the Merger and
plans for the Surviving Corporation has been supplied by Mergerco. Except as
otherwise indicated, all other information contained in this Proxy Statement
has been supplied by the Company.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal financial
and tax advisors.
-------------------------
The date of this Proxy Statement is January __, 1997.
(ii)
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Voting at the Meeting; Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Special Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Recommendation of the Special Committee and Board of Directors; Fairness of the Merger . . . . . . . . . . . . 12
Position of Mr. Levy and Messrs. Halperin Regarding Fairness of the Merger . . . . . . . . . . . . . . . . . . 14
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mergerco's Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Plans for the Company after the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Certain Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conditions, Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Directors and Officers of the Company Following the Merger; Certificate of Incorporation . . . . . . . . . . . 27
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Termination; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Certain Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Federal Income Tax Consequences of the Merger to the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . 32
Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Financing of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Information Concerning Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Information Concerning Mr. Levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Information Concerning Messrs. Halperin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Market for the Company's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 39
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Information as to Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Information Concerning Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Documents Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
EXHIBIT A - Agreement And Plan Of Merger
EXHIBIT B - Opinion Of Patricof & Co. Capital Corp.
EXHIBIT C - Section 262 Of The Delaware General Corporation Law
EXHIBIT D - Annual Report on Form 10-K for the Fiscal Year ended July 31, 1996, as amended
EXHIBIT E - Quarterly Report on Form 10-Q for the Fiscal Quarter ended October 31, 1996
</TABLE>
(iii)
<PAGE> 6
SUMMARY
The following summary is intended to highlight certain information
contained in this Proxy Statement. This summary does not purport to be
complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement, the Exhibits hereto and the other
documents referred to herein. Unless defined herein, capitalized terms used in
this summary have the meanings ascribed to them elsewhere in this Proxy
Statement. Stockholders are urged to read this Proxy Statement, the Exhibits
hereto and the documents referred to herein in their entirety.
<TABLE>
<S> <C>
Entity Soliciting Proxies . . . . . . . . . The Company
Merger Agreement . . . . . . . . . . . . . The Company and Mergerco have entered into a Merger Agreement, dated as
of November 21, 1996, providing for the Merger of Mergerco with and
into the Company, with the Company being the Surviving Corporation.
Under the terms of the Merger Agreement, each Share of the Company's
Common Stock outstanding immediately prior to the effective time of
the Merger (other than Shares held by Mergerco or any subsidiary of
Mergerco, all of which will be cancelled, and other than Shares held
by dissenting stockholders who perfect their statutory appraisal
rights under Delaware law) will be converted into the right to receive
$6.00 in cash, without interest. Immediately prior to the effective
time of the Merger, Mr. Levy and Messrs. Halperin will contribute all
of their respective Shares of the Company's Common Stock to Mergerco
in exchange for shares of the common stock of Mergerco. Upon
consummation of the Merger, the shares of the Company's Common Stock
held by Mergerco will be cancelled and the common stock of Mergerco
owned by Mr. Levy and Messrs. Halperin will be converted into all of
the outstanding common stock of the Surviving Corporation. Thus, as a
result of the Merger, the Surviving Corporation will become wholly-
owned by Mr. Levy and Messrs. Halperin. See "Special Factors-
Interests of Certain Persons in the Merger" and "Information as to
Stock Ownership."
Date, Time and Place of Special
Meeting of Stockholders . . . . . . . . . The Meeting will be held on Thursday, January 30, 1997, at the Omni
Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, at 11:00
a.m. local time.
Record Date . . . . . . . . . . . . . . . . Only stockholders of record at the close of business on Tuesday,
December 10, 1996 are entitled to notice of and to vote at the
Meeting. On that date there were 2,362,320 shares of the Company's
Common Stock outstanding.
</TABLE>
-1-
<PAGE> 7
<TABLE>
<S> <C>
Purposes of the Meeting . . . . . . . . . . (1) To consider and vote upon the approval and adoption of the Merger
Agreement (attached as Exhibit A); and (2) to transact such other
business as may properly come before the Meeting or any adjournment
thereof.
Vote Required . . . . . . . . . . . . . . . Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of the Company's
Common Stock. Each Share is entitled to one vote. As of the Record
Date, Mr. Levy and Messrs. Halperin collectively held 60.1% of the
outstanding Common Stock. This voting interest will enable them to
cast a sufficient number of votes to approve and adopt the Merger
Agreement without the affirmative vote of any other stockholder. All
Shares represented at the Meeting by properly executed proxies, unless
previously revoked, will be voted at the Meeting in accordance with the
instructions on the proxies. UNLESS CONTRARY INSTRUCTIONS ARE INDICATED,
PROXIES WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "General Information - Voting at the Meeting; Required Vote" and
"- Proxies."
Recommendation of the Special
Committee and Board of Directors . . . . The Special Committee has concluded that the Merger is fair to and in
the best interest of the Company's public stockholders and recommended
that the Board approve the Merger Agreement. At a meeting held on
November 12, 1996, the Board (other than Mr. Levy, who abstained)
unanimously approved the Merger Agreement, concluded that the Merger
is fair to and in the best interest of the Company's public
stockholders and recommended that the Company's stockholders approve
and adopt the Merger Agreement. The Special Committee and the Board,
in reaching their respective decisions, considered a number of
factors. See "Special Factors-Recommendation of the Special Committee
and Board of Directors; Fairness of the Merger." The sole member of
the Special Committee is and has at all times been Bernard R. Green,
who neither is an employee of the Company nor has a significant stock
interest in the Company.
THE BOARD, INCLUDING THE SPECIAL COMMITTEE (AND OTHER THAN MR. LEVY, WHO
ABSTAINED), HAS UNANIMOUSLY RECOMMENDED THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
</TABLE>
-2-
<PAGE> 8
<TABLE>
<S> <C>
Opinion of Financial Advisor . . . . . . . The Special Committee retained Patricof to provide financial advice and
other assistance to the Special Committee, including performing a
market check of companies that may have had an interest in acquiring
all or any part of the Company. Patricof has delivered its written
opinion to the Special Committee and the Board to the effect that the
Merger Consideration is fair to the Company's public stockholders from
a financial point of view. A copy of Patricof's opinion is attached
hereto as Exhibit B. Stockholders are urged to read this opinion in
its entirety for assumptions made, matters considered, procedures
followed and scope of review by Patricof in rendering its opinion. See
"Special Factors-Opinion of Financial Advisor."
Background of the Merger . . . . . . . . . For a description of the events leading up to the approval of the Merger
Agreement by the Board, see "Special Factors - Background of the
Merger."
Interests of Certain Persons
in the Merger . . . . . . . . . . . . . . Mr. Levy, Chairman of the Board of Directors and Chief Executive Officer
of the Company, owns 834,637 shares of the Company's Common Stock, and
Maurice A. Halperin and Barry S. Halperin together own 585,032 shares
of the Company's Common Stock. Immediately prior to the effective time
of the Merger, Mr. Levy and Messrs. Halperin will each transfer all of
their respective Shares to Mergerco. As a result of the Merger, Mr. Levy
will own 4,172 shares, or 58.8%, of the common stock of the Surviving
Corporation, and Messrs. Halperin will own collectively 2,924 shares, or
41.2%, of the common stock of the Surviving Corporation. See "Special
Factors - Interest of Certain Persons in the Merger."
The Merger Agreement provides that, (i) other than Mr. Levy, none of the
current directors of the Company will be the initial directors of the
Surviving Corporation, and, (ii) with the exception of Mr. Levy, who
will serve as president, none of the current officers of the Company
will be the initial officers of the Surviving Corporation. See "The
Merger Agreement - Directors and Officers of the Company Following the
Merger; Certificate of Incorporation."
Mergerco has agreed in the Merger Agreement to cause the Surviving
Corporation to provide and maintain directors' and officers' liability
insurance and to indemnify the current directors and officers of the
Company subsequent
</TABLE>
-3-
<PAGE> 9
<TABLE>
<S> <C>
to the Merger. See "The Merger Agreement - Indemnification and
Insurance."
Certain officers, directors and employees of the Company will benefit
from the Merger because of their interests in the Company's stock
option plans as described under "Company Stock Option Plan Interests"
below, and because they currently own Shares of the Company's Common
Stock. See "Special Factors-Certain Effects of the Merger," "-Plans
for the Company after the Merger" and "-Interests of Certain Persons
in the Merger."
Company Stock Option Plan Interests . . . . The Merger Agreement provides that the Company's 1992 Stock Option Plan
and the Company's 1995 Stock Option Plan (together, the "Plans") will
be terminated and that Mergerco will pay to each holder of an option
thereunder cash, less applicable withholding taxes, in an amount equal
to the excess, if any, of $6.00 over the per share exercise price for
each Share of Common Stock subject to the option. See "Special
Factors-Interests of Certain Persons in the Merger" and "The Merger
Agreement - Stock Options."
Effective Time of the Merger . . . . . . . The Merger is expected to become effective as of the date and time (the
"Effective Time") of the filing of an appropriate Certificate of
Merger with the Secretary of State of the State of Delaware, which is
anticipated to occur as soon as practicable after the approval and
adoption of the Merger Agreement by the Company's stockholders and the
satisfaction or waiver of the other conditions to the Merger stated in
the Merger Agreement.
Payment to Stockholders . . . . . . . . . . Immediately prior to or at the Effective Time, Mergerco will deliver to
American Stock Transfer & Trust Company, in its capacity as a paying
agent (the "Paying Agent"), in trust, all of the cash to be paid to
the Company's stockholders. Notice of completion of the Merger,
together with instructions regarding procedures for payment, will
be mailed to stockholders as soon as practicable after the Effective
Time. See "The Merger Agreement-Payment for Shares" and "The Merger
Agreement-The Exchange Fund."
STOCKHOLDERS SHOULD NOT SURRENDER CERTIFICATES FOR SHARES OF THE
COMPANY'S COMMON STOCK UNTIL THEY RECEIVE A TRANSMITTAL LETTER
CONTAINING SUCH INSTRUCTIONS.
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Dissenters' Rights . . . . . . . . . . . . Under Delaware law, stockholders who do not vote in favor of the Merger
and file demands for appraisal prior to the stockholder vote on the
Merger Agreement, upon the consummation of the Merger, have the right
to obtain a cash payment for the "fair value" of their Shares
(excluding any element of value arising from the accomplishment or
expectation of the Merger). In order to exercise such rights, a
stockholder must comply with all of the procedural requirements of
Section 262 ("Section 262") of the General Corporation Law of the
State of Delaware, a description of which is provided in "Rights of
Dissenting Stockholders" herein and the full text of which is attached
to this Proxy Statement as Exhibit C. Such "fair value" would be
determined in judicial proceedings, the result of which cannot be
predicted. Failure to take any of the steps required under Section 262
may result in a loss of such dissenters' rights.
Federal Income Tax Consequences . . . . . . If the Merger is consummated, the Company's stockholders (including
dissenting stockholders) will recognize taxable gain or loss for
federal income tax purposes equal to the difference between the
stockholders' adjusted tax bases in their Shares and the amount of
cash received therefor. Stockholders should consult their tax advisors
with respect to the tax consequences of the transaction. See "Federal
Income Tax Consequences of the Merger to the Company's Stockholders."
Conditions to the Merger;
Termination . . . . . . . . . . . . . . . The consummation of the Merger is conditioned upon the fulfillment of
certain conditions contained in the Merger Agreement, including the
approval and adoption of the Merger Agreement by the holders of a
majority of the outstanding Shares and the exercise of rights to
appraisal under the Delaware General Corporation Law by holders of not
more than 5% of the outstanding Shares of Common Stock. See "The
Merger Agreement-Conditions, Representations and Covenants" and
Exhibit A.
As of the Record Date, Mr. Levy and Messrs. Halperin collectively held
approximately 60.1% of the outstanding Common Stock. This voting interest
will enable them to cast a sufficient number of votes to approve and adopt
the Merger Agreement without the affirmative vote of any other stockholder.
See "General Information - Voting at the Meeting; Required Vote."
The Merger Agreement may be terminated upon mutual consent of the Boards
of the Company and Mergerco, by either the Company or Mergerco if the
Merger has not
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been consummated on or before March 31, 1997, and under certain other
circumstances. See "The Merger Agreement - Termination; Amendments"
and Exhibit A.
Financing of the Merger . . . . . . . . . . Immediately prior to or at the Effective Time, Mergerco will deliver to the
Paying Agent cash sufficient to pay the Merger price for each
outstanding Share of the Company's Common Stock (other than Shares
held by Mergerco). The total amount of cash required to consummate
the Merger will be $7,132,501, consisting of approximately $5,655,906
which will be paid to the stockholders of the Company (other than Mr.
Levy and Messrs. Halperin), approximately $1,067,000 which will be
paid to holders of outstanding options to purchase Common Stock of the
Company in cancellation of such stock options, and approximately
$409,595 which will be used to pay estimated transaction fees and
expenses. It is contemplated that Mergerco will finance its
obligations pursuant to the Merger with loans from Mr. Levy and
Messrs. Halperin, who will use their personal funds and obtain
additional funds through borrowings from an institutional lender to
make such loans. See "Financing of the Merger."
Accounting Treatment . . . . . . . . . . . The Merger will be accounted for under the purchase method of
accounting.
Fees and Expenses . . . . . . . . . . . . . The total amount of fees and expenses estimated to be incurred in
connection with the Merger is $409,595. Such amount includes,
among other things, the fees due Patricof, the Special Committee and
counsel to Mergerco, accounting fees, and commitment and related fees
and expenses related to the financing of the Merger. See "Special
Factors - Opinion of Financial Advisor," "The Merger Agreement - Fees
and Expenses" and "Fees and Expenses."
Business of the Company . . . . . . . . . . The Company is primarily engaged in the design, development,
construction, marketing and sale of condominium apartments at the
Century Village adult condominium project in Pembroke Pines, Florida
("Century Village"), and the operation of the recreation facilities
located there. In addition, the Company is engaged in the development
of single-family homesites in a golf course community in Volusia
County, Florida, known as Glen Abbey ("Glen Abbey"), and the sale of
those homesites to local builders and retail customers. The Company
also derives revenues from a variety of real
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estate related activities, including certain maintenance and community
services at Century Village, real estate brokerage, title insurance
agency services, and investment advisory and consulting services.
The Company is involved in all phases of planning and building Century
Village, including site planning and preparation, application for and
receipt of regulatory approval, design, construction, marketing and
sales, in addition to constructing recreation facilities and other
amenities. The Company is also involved in all phases of the
development of Glen Abbey, including site planning and preparation,
application for and receipt of regulatory approvals, and sales and
marketing to builders and other potential purchasers.
Certain Effects of the Merger . . . . . . . If the Merger is consummated, the Company's public stockholders will no
longer have any interest in, and will not be stockholders of, the
Company and, therefore, will not participate in its future potential
earnings and growth and will not be subject to the risks associated
with an investment in the Company. Instead, each such stockholder
will have the right to receive upon consummation of the Merger $6.00
in cash for each Share he or she held (other than shares held by
Mergerco, any of its subsidiaries or stockholders who perfect their
statutory appraisal rights under Delaware law) whether or not the
Company's future earnings meet the projections on which the
determination of the fairness of the price was based. Conversely, if
the Merger is consummated, Mr. Levy and Messrs. Halperin will realize
all of the Company's profits and losses, as well as any future
deterioration or improvement in the Company's earnings. See "Special
Factors - Certain Effects of the Merger."
Market Price of the Company's
Common Stock . . . . . . . . . . . . . . Mr. Levy delivered a letter to the Company's Board at a meeting held on
Friday, August 9, 1996 in which he proposed the Merger. On the
following Monday, August 12, the Company issued a press release
revealing Mr. Levy's letter, and the same day, Mr. Levy filed a
Schedule 13D under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with the Securities and Exchange Commission (the
"Commission"), to which his letter was attached as an exhibit. The
last sale prices per Share (or, in the absence of trading, the high
and low bid and ask prices) of the Company's Common Stock reported by
the National Association of Securities Dealers Automated Quotation
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System ("Nasdaq") on August 5, 6, 7, 8 and 9, 1996, were, respectively:
$4-5/8; $4-5/8 and $5; $4-5/8; $4-5/8 and $4-7/8; and $4-5/8 and $4-7/8. As
reported by Nasdaq, on November 12, 1996, the date the Board approved the
Merger Agreement, the high and low bid and ask prices of the Company's Common
Stock as reported by Nasdaq were $5-5/16 and $5-13/16 per Share. As reported
by Nasdaq, on November 20, 1996, the last full trading day prior to the date of
execution of the Merger Agreement, the high and low bid and ask prices were
$5-5/16 and $5-13/16 per Share, and on January ___, 1997, the last full trading
day prior to the date of this Proxy Statement, the last sale price was $____ per
Share. Stockholders are urged to obtain current quotations for the Shares. See
"Market for the Company's Common Stock and Related Stockholder Matters" for the
market price range of the Common Stock for each quarter during the years ended
July 31, 1996 and 1995 and the quarter ended October 31, 1996, as well as
additional related information.
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GENERAL INFORMATION
VOTING AT THE MEETING; REQUIRED VOTE
The Board of Directors has fixed the close of business on December 10,
1996 as the Record Date for the Meeting, and only holders of the Company's
Common Stock of record at the close of business on that date are entitled to
notice of and to vote at the Meeting. As of that date, there were 2,362,320
Shares of the Company's Common Stock outstanding and entitled to vote, held by
approximately 350 holders of record. Each Share is entitled to one vote.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding Shares of the Company's Common Stock entitled
to vote is necessary to constitute a quorum at the Meeting. The affirmative
vote of the holders of a majority of the outstanding Shares is required for
approval and adoption of the Merger Agreement. As of the Record Date, Mr. Levy
and Messrs. Halperin collectively held approximately 60.1% of the outstanding
Common Stock. This voting interest will enable them to cast a sufficient
number of votes to approve and adopt the Merger Agreement without the
affirmative vote of any other stockholder.
PROXIES
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Stockholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Meeting or by filing with the Company's
Secretary at the Company's principal executive offices a written revocation or
duly executed proxy bearing a later date; however, no such revocation will be
effective until written notice of the revocation is received by the Company at
or prior to the Meeting. The proxy committee will vote all proxies in its
possession which have not been revoked. Attendance at the Meeting will not, by
itself, constitute revocation of a proxy. Any written notice revoking a proxy
should be sent to Hilcoast Development Corp., 19146 Lyons Road, Boca Raton,
Florida 33434, Attention: Secretary.
All Shares represented at the Meeting by properly executed proxies
received prior to or at the Meeting, unless previously revoked, will be voted
at the Meeting in accordance with the instructions on the proxies. Unless
contrary instructions are indicated, proxies will be voted FOR the approval and
adoption of the Merger Agreement. The Company does not know of any matters,
other than as described in the Notice of Special Meeting of Stockholders, which
are to come before the Meeting. If any other matters are properly presented at
the Meeting for action, the persons named in the enclosed form of proxy and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Special Meeting of Stockholders and the enclosed proxy is to be borne
by the Company. The Company will request banks, brokers and other custodians,
nominees and fiduciaries to forward copies of the proxy material to their
principals and to request authority for the execution of proxies. The Company
may reimburse such persons for their expenses in so doing.
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No person is authorized to give any information or make any
representation not contained in this Proxy Statement, and if given or made,
such information or representation should not be relied upon as having been
authorized.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Prior to the Company's Board meeting at which Mr. Levy delivered his
letter containing the Merger proposal, Mr. Levy informed Messrs. Halperin of
his intention to make the Merger proposal and asked them if they would be
interested in participating in the formation and ownership of Mergerco for the
purpose of effecting the Merger. Messrs. Halperin informed Mr. Levy that they
were interested in such a participation, whereupon Mr. Levy delivered his
letter to the Board in a form that reflected his understanding with Messrs.
Halperin.
On August 9, 1996, at a regular meeting of the Company's Board of
Directors, attended by H. Irwin Levy, Michael S. Rubin, Jack Jaiven, Joseph D.
Weingard and Bernard R. Green, constituting all of the directors, the Board
received a letter from Mr. Levy, the Company's Chairman of the Board, Chief
Executive Officer and holder of approximately 35.3% of the Company's
outstanding Shares, containing an unsolicited proposal on behalf of
an acquisition corporation to be formed by Mr. Levy and Messrs. Halperin,
holders of approximately 24.8% of the Company's outstanding Shares,
contemplating the Merger, including the proposed Merger Consideration of $6.00
per Share. On August 12, 1996, the Company issued a press release to that
effect.
At the meeting held on August 9, 1996, the Board appointed Bernard R.
Green to be the sole member of the Special Committee. Mr. Green is not an
employee of the Company or an affiliate of Mergerco and holds less than 1% of
the outstanding Common Stock of the Company. Mr. Green has been at all times
the sole member of the Special Committee. For his services on the Special
Committee, the Company has agreed to pay Mr. Green a fee of $100,000 upon the
consummation of the Merger.
On August 19, 1996, the Special Committee retained the law firm of
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. ("Greenberg
Traurig") as its independent legal counsel and discussed with a member of
Greenberg Traurig the Merger proposal and the role of the Special Committee.
Greenberg Traurig has, from time to time, provided legal services to the
Company, which, in the most recent several years, have consisted primarily
of reviewing periodic reports, proxy statements and other documents filed with
the Commission. The Special Committee also held a number of telephonic
conferences with representatives of Greenberg Traurig concerning the terms of
the Merger Agreement and the preparation of this Proxy Statement.
During August 1996, the Special Committee considered several nationally
recognized investment banking firms and interviewed two such firms for possible
retention to act as financial advisor to the Special Committee and to furnish
an opinion as to the fairness, from a financial point of view, of the
consideration to be received by the Company's public stockholders in the
Merger. On September 3, 1996, the Special Committee retained Patricof to act
as its financial advisor (i) to furnish an opinion as to the fairness, from a
financial point of view, of the consideration to be received by the Company's
public stockholders in the proposed Merger, and (ii) to provide such additional
assistance to the Special Committee as it may reasonably request (including
advice with respect to alternatives available to the Company other than the
Merger). On that day, the Special Committee also discussed with a representative
of Patricof the work to be performed by Patricof with respect to its analyses
of the Merger proposal. The engagement of
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Patricof was based on Patricof's position as a nationally recognized investment
banking firm and its experience in transactions of this type.
From the time of its engagement until the delivery of its written
opinion to the Special Committee and the Board, Patricof conducted a review of
the business, operations and prospects of the Company and in connection
therewith had a number of meetings, including telephonic meetings, with members
of the Company's management and inspected certain of the Company's facilities.
As part of its review of the proposed transaction, the Special
Committee considered whether to solicit proposals from third parties which
might be interested in acquiring the entire Company, including the interests of
Mr. Levy and Messrs. Halperin. The Special Committee inquired whether Mr. Levy
and Messrs. Halperin would be willing to sell their respective equity interests
in the Company. Mr. Levy and Messrs. Halperin confirmed that they had no
present intention of selling the Shares they beneficially own to any potential
acquiror. Notwithstanding Mr. Levy's and Messrs. Halperin's present intent not
to sell their Shares, Patricof performed a market check by transmitting letters
to seven potential acquirors selected by Patricof soliciting indications of
interest in acquiring all or any part of the Company. Three of such potential
acquirors indicated that they were not interested, and Patricof has received no
response from the others. In addition to the foregoing, neither the Company,
the Board nor the Special Committee has received any offers from other parties
to acquire the Company. The Special Committee, however, has been authorized to
consider proposals from third parties, if any such proposals are made.
At a telephonic meeting held on October 30, 1996, in which the Special
Committee, representatives of Greenberg Traurig and representatives of Patricof
participated, Patricof presented a preliminary analysis of the proposed Merger
to the Special Committee and stated that it was prepared to render its opinion
with respect to the fairness, from a financial point of view, of the Merger
Consideration to be received by the Company's public stockholders in the
proposed Merger. At that meeting, the Special Committee obtained
clarifications from Patricof with respect to certain portions of its report.
Such clarifications pertained generally to the methodologies utilized by
Patricof in the preparation of its report and specifically to the market check
performed by Patricof.
Through October and November 1996, representatives of Greenberg Traurig
and representatives of the law firm of Proskauer Rose Goetz & Mendelsohn, LLP
("Proskauer"), counsel to Mergerco, negotiated various terms of the Merger
Agreement by telephonic conference. The initial drafts of the Merger Agreement
contained provisions restricting the Board's right to negotiate on behalf of
the Company with third parties with respect to alternative proposals to the
Merger. However, at the Special Committee's insistence, the Merger Agreement
was revised to remove such restrictions. In addition, at the Special
Committee's insistence, the Merger Agreement was revised to provide that it
would not be executed until Patricof delivered its written opinion that the
consideration to be paid to the Company's public stockholders in the Merger is
fair, from a financial point of view.
Representatives of Greenberg Traurig and Proskauer also held
discussions regarding the language of this Proxy Statement.
In view of the engagement of legal counsel to the Special Committee and
of Patricof as its independent financial advisor, the absence of any
affiliation on the part of the member of the Special Committee with Mergerco
and the negotiations by counsel to the Special Committee with counsel to
Mergerco concerning the terms of the Merger Agreement (including provisions
protecting the Company's stockholders, such as the right of the Board to
negotiate with third parties), neither the Board of Directors nor the Special
Committee considered it necessary to retain an unaffiliated representative to
act on behalf of the Company's public stockholders for the purpose of
negotiating the terms of the Merger Agreement.
After reviewing Patricof's preliminary analysis and drafts of the
Merger Agreement, and discussing the terms of the Merger with its financial
advisor and legal counsel, following receipt of Patricof's oral fairness
opinion, the Special Committee concluded that the proposed Merger was fair to
and in the best interest of the public stockholders of the Company and
recommended that the Board of Directors of the Company approve and adopt the
Merger Agreement and that the Board of Directors recommend to the stockholders
that they approve and adopt the Merger Agreement.
On November 12, 1996, at a meeting of the Board of Directors, attended
by all members of the Board and representatives of Patricof and Greenberg
Traurig, Patricof presented its analysis of the proposed Merger to the Board
of Directors and rendered its oral opinion that the $6.00 cash per Share
constituting the Merger Consideration was fair to the Company's public
stockholders from a financial point of view. After discussion regarding the
Patricof report, the Special Committee made its recommendation
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regarding the Merger Agreement to the Board of Directors. After reviewing with
representatives of Patricof the basis for its opinion, and reviewing and
approving the terms and conditions of the proposed Merger Agreement, the Board
(other than Mr. Levy, who abstained because of his interest in the Merger)
unanimously approved the Merger Agreement, concluded that the Merger is fair to
and in the best interest of the Company's public stockholders and recommended
that the stockholders approve and adopt the Merger Agreement.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER
THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS (OTHER THAN MR. LEVY WHO
ABSTAINED) HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AND RECOMMENDED
THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
The Special Committee and the Board (other than Mr. Levy who abstained)
have unanimously approved the Merger Agreement, concluded that the Merger is
fair to and in the best interest of the public stockholders of the Company, and
have recommended that the stockholders approve and adopt the Merger Agreement.
The Special Committee, in making its recommendation to the Board, and
the Board, in reaching its decision, considered a number of factors, including
without limitation, the following:
(i) The opinion of Patricof regarding the fairness, from
a financial point of view, of the Merger Consideration to the public
stockholders of the Company and the written report and oral
presentations regarding such report by Patricof to the Special
Committee and the Board, including Patricof's comparative company and
discounted cash flow analyses, its comparative transaction analysis,
its consideration of breakup value and liquidation value and its market
check. See "Opinion of Financial Advisor." The Special Committee
expressly accepted the conclusion and analysis of Patricof. In its
review of the analyses performed by Patricof, the Special Committee and
the Board did not study each of the separate analyses individually but
rather relied upon the summary and conclusions of Patricof that the
analyses, taken as a whole, supported the conclusion that the Merger is
fair to the Company's public stockholders from a financial point of
view. Based on Patricof's expertise and experience in the evaluation
of businesses in connection with transactions similar to the Merger and
Patricof's explanations of its methodology and analyses, the Special
Committee and the Board believed that Patricof's opinion as to the
fairness of the Merger Consideration to be received by the public
stockholders was well supported and sound. The Board and the Special
Committee believed that the Patricof written report, oral presentations
and opinion supported the Special Committee's and Board's fairness
determination.
(ii) The premium by which the Merger Consideration of
$6.00 per Share exceeds the high and low closing bid and ask prices
($4-5/8 and $4-7/8) of the Shares on the day prior to the Company's
announcement of its receipt of the Merger proposal from Mr. Levy, the
premium by which the Merger Consideration exceeds the highest price
($5.00) at which the Shares traded in the 52-week period preceding such
announcement date, and the fact that the Merger Consideration is
substantially in excess of the Company's book value per Share of $0.78
at July 31, 1996, or approximately 7.7 times such book value per Share.
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(iii) The low level of trading of the Shares on the Nasdaq
Small-Cap Market and the small number of stockholders of record
(approximately 350 as of December 10, 1996). As a result, a stockholder
who currently wants to sell his or her Shares may find it very
difficult to do so. The Merger would provide each stockholder other
than Mergerco with cash for his or her shares.
(iv) The Board's and Special Committee's assessment that
Mr. Levy and Messrs. Halperin will be able to consummate the Merger in
a timely fashion given the extent of their personal funds, the nature
and sources of their financing commitments received with respect to the
Merger and the conditions to the obligations of such institutions to
fund such commitments.
(v) The adequacy of the information regarding the Company
which the Special Committee and its financial and legal advisors had
been provided. The members of the Board and the Special Committee have
knowledge of and a familiarity with the business, financial condition,
existing assets, results of operations and prospects of the Company, as
well as the industry, the risks associated with achieving its projected
operating results, and the impact on the Company of general economic
and market conditions. Based on such knowledge and general knowledge
about stock market values, the members of the Board and the Special
Committee believed that the projections considered by Patricof (see
"Certain Projections") were reasonable and supported the Board's and
the Special Committee's fairness determination.
(vi) The establishment of the Special Committee to make an
independent determination as to the fairness of the Merger and to
negotiate the terms of the Merger Agreement with representatives of
Mergerco, given the potential conflict of interest of Mr. Levy and
certain other directors, supported the Board's and the Special
Committee's determination of fairness.
(vii) The beneficial interest of the Company's principal
stockholders, Mr. Levy and Messrs. Halperin, and their present intent
not to sell their beneficial interests in the Company. Subsequent to
the announcement of the transaction, no other offers to acquire the
Company have been made, and no indications of interest in acquiring all
or any part of the Company have been received by Patricof in response
to its letters to seven potential acquirors soliciting such indications
of interest. Given these factors, the Special Committee and the Board
believed it was highly unlikely that a third party would offer to
purchase only the Shares held by the public stockholders and that it
was reasonable to conclude that a higher offer would not be received
from a third party.
(viii) The opportunity stockholders have to seek appraisal
of their Shares in accordance with Delaware law. While the Special
Committee and Board believe the Merger is fair to the Company's public
stockholders, the availability of dissenters' rights for stockholders
who may disagree with this belief supported the decision of the Special
Committee and the Board to recommend approval and adoption of the
Merger Agreement.
In view of the wide variety of factors considered in connection with
their evaluations of the Merger Agreement, neither the Special Committee nor
the Board found it practicable to, and did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching their
respective determinations. As a general matter, the Company determined that
each of the factors discussed in (i) through (viii) above were supportive of
their conclusion that the Merger is fair to and in the best
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interest of the Company's public stockholders. In considering each such factor,
the Special Committee and the Board specifically took note of the following
points:
With respect to the opinion of Patricof, the Special Committee and the
Board considered the fact that Patricof reviewed the cash flow projections
prepared by management with respect to the Company's build-out of Century
Village and the cash flow and income projections prepared by management with
respect to the recreational leases entered into by the owners of condominium
apartments of Century Village with one of the Company's subsidiaries for the
use of certain recreational facilities. See "Certain Projections." In
addition, at the November 12, 1996 meeting of the Board, members of the Board
asked representatives of Patricof to elaborate generally upon the
methodologies set forth in its report and specifically upon the calculation of
the weighted average cost of capital used in the discounted cash flow analysis.
Members of the Board also asked representatives of Patricof to discuss the
effect on its analysis of the fact that most of the companies used in the
comparative company analysis were larger and generally more stable than the
Company. In response, Patricof pointed out that while there was no
correlation between the size of the comparative company and its multiple, such
factor could, as a general proposition, be said to result in a more
conservative determination of the fairness of the consideration to be paid
to the Company's public stockholders.
With respect to factors (ii) and (iii) above, although the Special
Committee, the Board and Patricof took note of the market price of the
Company's Common Stock, none of such persons relied exclusively upon the
current or historical market prices of the Company's Common Stock in making its
determination with respect to the fairness of the consideration to be received
in the Merger, given the fact that the Common Stock has been and continues to
be thinly traded. Rather, while Patricof conducted a comparative transaction
analysis that considered the premium offered in the Merger, it based its
determination primarily on its discounted cash flow analysis and comparative
company analysis.
With respect to factor (v) above, the Special Committee noted that
the Company's relatively small market capitalization and the competition that
the Company's new condominiums face from cheaper and more plentiful used
condominiums not only present risks to the Company from an operational
standpoint with respect to the Century Village project, but also have the
effect of limiting the Company's opportunities for growth after the build-out
of Century Village is complete.
With respect to factors (vi) and (vii) above, the Special Committee
considered the fact that even though the Merger may not be considered to be at
"arm's-length" because Mr. Levy and Messrs. Halperin are both (x) affiliates of
the Company and (y) parties to the Merger Agreement with different interests
than the Company, the terms of the Merger Agreement were determined
through arms'-length negotiations between the Special Committee and its legal
and financial advisors, on the one hand, and representatives of Mergerco, on
the other. Moreover, as a result of the Special Committee's insistence, the
Merger Agreement provides that the Board has the right to negotiate on behalf
of the Company with third parties with respect to alternatives to the Merger
proposal. The fact that the Special Committee is free to negotiate with third
parties, coupled with the absence of any indications of interest from potential
acquirors contacted by Patricof in its market check or any other alternative
proposals, was an important factor in its conclusion that it was reasonable to
conclude that a higher offer would not be received from a third party.
Furthermore, while the Special Committee and the Board recognize that the
Merger is not structured to require the approval of a majority of the
unaffiliated stockholders of the Company and that Mr. Levy and Messrs. Halperin
have sufficient voting power to approve and adopt the Merger Agreement without
the affirmative vote of any other stockholder, the Special Committee and
the Board believe that the Merger is fair to the Company's public stockholders
in light of the market check performed by Patricof and the conclusions reached
by Patricof pursuant to its analyses more particularly set forth under "Opinion
of Financial Advisor."
In conclusion, the Special Committee's arms'-length negotiations with
Mergerco through counsel regarding the terms of the Merger Agreement, together
with the absence of any third-party offers, the Company's financial condition,
results of operations and prospects, and the Special Committee's and the
Board's reliance on the analyses and opinion of Patricof were the principal
factors upon which the Special Committee and the Board based their conclusion
that the Merger and the Merger Consideration are fair to and in the best
interests of the public stockholders of the Company. The Special Committee and
the Board also believed that the possibility of realizing greater value for
stockholders through an alternative transaction with a third party was, and
continues to be, protected by the Special Committee's ongoing contractual power
to negotiate with any third parties interested in pursuing an alternative
transaction.
POSITION OF MR. LEVY AND MESSRS. HALPERIN REGARDING FAIRNESS OF THE MERGER
Each of Mr. Levy and Messrs. Halperin has concluded that the Merger is
fair to the Company's stockholders. In arriving at this conclusion, and in view
of the fact that the Merger involves a transaction between the Company and
certain of its affiliates and therefore may not be considered at arm's-length,
each of Mr. Levy and Messrs. Halperin considered the following factors: (i)
that the premium by which the Merger Consideration of $6.00 per Share exceeded
the high and low closing bid and ask prices ($4-5/8 and $4-7/8) of the Shares
on the trading day prior to the Company's announcement of its receipt of the
Merger
-14-
<PAGE> 20
proposal from Mr. Levy, the premium by which the Merger Consideration exceeds
the highest price ($5.00) at which the Shares traded in the 52-week period
preceding such announcement day, and the fact that the Merger Consideration is
substantially in excess of the Company's book value per Share of $0.78 at July
31, 1996, or approximately 7.7 times such book value per Share; (ii) the Merger
Consideration to be paid to stockholders (other than Mergerco and stockholders
who perfect their statutory appraisal rights under Delaware law) and other
steps taken to insure fairness, such as the appointment of the Special
Committee and the terms and conditions of the Merger Agreement which resulted
from active negotiations between Mergerco and the Special Committee and their
respective counsel; (iii) that the Special Committee and the Board approved the
Merger Agreement after the Special Committee had consulted extensively with
independent legal and financial advisors; (iv) that neither Mr. Levy nor
Messrs. Halperin, the Company's principal stockholders, has any present
intention of selling their respective Shares, thereby decreasing the likelihood
of a sale of the Company to a third party; (v) that subsequent to the
announcement of the transaction, no other offers to acquire the Company have
been made and that no indications of interest in acquiring all or any part of
the Company have been received by Patricof in response to its letters to seven
potential acquirors soliciting such indications of interest, (vi) that the
Special Committee at the time it approved the Merger Agreement had received and
reviewed the opinion of Patricof to the effect that as of the date of such
opinion the Merger Consideration to be received by the Company's public
stockholders is fair from a financial point of view; and (vii) that
stockholders have the opportunity to demand appraisal of their Shares in
accordance with Delaware law.
In connection with Mr. Levy and Messrs. Halperin's establishment of the
price they were willing to offer to acquire the Company, Mr. Levy informally
considered the market price of the Company's Shares, the Company's business
prospects, revenues and expenses, and the period of time over which such
revenues are projected to be realized. See "Certain Projections." Based on
such values, Mr. Levy determined the amount of the Merger Consideration to be
fair to the Company's public stockholders. Although Mr. Levy and Messrs.
Halperin took note of the market price of the Company's Common Stock, none of
such persons relied exclusively upon the current or historical market prices of
the Company's Common Stock in making its determination with respect to the
fairness of the consideration to be received in the Merger, given the fact that
the Common Stock has been and continues to be thinly traded.
Furthermore, while Mr. Levy and Messrs. Halperin recognize that the
Merger is not structured to require the approval of a majority of the
unaffiliated stockholders of the Company and that they have sufficient voting
power to approve and adopt the Merger Agreement without the affirmative vote of
any other stockholder, Mr. Levy and Messrs. Halperin believe that the Merger
is fair to the Company's public stockholders in light of the market check
performed by Patricof and the conclusions reached by Patricof pursuant to its
analyses more particularly set forth under "Opinion of Financial Advisor."
In view of the wide variety of factors considered in connection with
their respective evaluations of the Merger, none of Mr. Levy or Messrs.
Halperin found it practicable to, and did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching their
respective determinations. Mr. Levy and Messrs. Halperin recognized that their
interests in the Merger are not the same as the interests of the other holders
of Common Stock in the Merger. See "Interest of Certain Persons in the
Merger."
OPINION OF FINANCIAL ADVISOR
Patricof has acted as the sole financial advisor to the Special
Committee in connection with the Merger and has assisted the Special Committee
in its examination of the fairness, from a financial point of view, to the
public stockholders of the Company of the consideration to be received by them
in the Merger. As used herein and in the opinion of Patricof, the term "public
stockholders" means all stockholders other than Mr. Levy and Messrs. Halperin,
or persons or affiliates of such persons joining with Mr. Levy or Messrs.
Halperin for purposes of completing the Merger.
On October 30, 1996, Patricof indicated to the Special Committee that
it was prepared to render its opinion as to the fairness of the Merger
Consideration to the Company's public stockholders from a financial point of
view, subject to Patricof's review of revised drafts of the Merger Agreement
and this
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<PAGE> 21
Proxy Statement. On November 12, 1996, Patricof delivered its oral opinion to
the Special Committee and the Board of Directors to the effect that, as of the
date of such opinion, the $6.00 per Share cash consideration to be received in
the Merger is fair to the public stockholders of the Company from a financial
point of view. The full text of such opinion, which sets forth the assumptions
made, procedures followed, matters considered and scope of review by Patricof
in rendering its opinion, is attached as Exhibit B to this Proxy Statement and
is incorporated herein by reference. Stockholders are urged to read the
Patricof opinion in its entirety. In addition, a copy of the written report
presented by Patricof to the Special Committee was filed as an exhibit to the
Rule 13e-3 Transaction Statement on Schedule 13E-3 ("Schedule 13E-3") under the
Exchange Act filed by the Company, Mergerco, Mr. Levy and Messrs. Halperin,
with the Commission with respect to the transactions described in this Proxy
Statement. Copies of the Schedule 13E-3 are available for inspection and
copying at the principal executive offices of the Company during regular
business hours by any interested stockholder of the Company, or a
representative who has been so designated in writing, and may be inspected and
copied, or obtained by mail, in the manner specified in "Available
Information." The summary set forth below does not purport to be a complete
description of such materials or presentations by Patricof.
In arriving at its opinion, Patricof (i) interviewed members of the
Company's management and others; (ii) inspected certain of the Company's
facilities; (iii) reviewed a variety of documents, including without
limitation, the Merger Agreement, this Proxy Statement, recent years' public
filings by the Company with the Commission, certain Company specific documents,
including stock option agreements, severance agreements, internal financial
statements and projections (see "Certain Projections"), a Century Village
Offering Circular, minutes of meetings of the Company's Board of Directors, and
data relating to certain litigation to which the Company is a party; (iv)
reviewed data on certain market and industry specific economic factors; (v)
reviewed publicly available financial information of the Company for recent
years and interim periods to date; (vi) compared certain financial and
securities trading data of the Company with certain other publicly traded
companies deemed comparable; (vii) reviewed historical market prices and
trading volumes of the Company's Shares; (viii) performed discounted cash flow
analyses; (ix) reviewed prices and premiums offered in other similar
transactions; (x) considered the Company's existing and prospective operations;
and (xi) conducted such other financial studies, analyses and investigations as
Patricof deemed appropriate for purposes of its opinion. In addition, Patricof
relied, without independent verification, on the accuracy and completeness of
all financial and other information that was publicly available or furnished to
it by the Company or Mergerco. Patricof further assumed that financial
projections examined by Patricof were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the
Company's management as to the future performance of the Company. Patricof
also performed a market check by transmitting letters to seven potential
acquirors selected by Patricof soliciting indications of interest in acquiring
all or any part of the Company. Patricof received no such indications of
interest. In rendering its opinion, Patricof did not make or obtain appraisals
of the Company's assets or liabilities (contingent or otherwise). In addition,
in accordance with the Special Committee's instructions regarding Patricof's
review of the Merger, Patricof did not advise the Special Committee with
respect to alternatives to the Merger, other than the market check described
herein. No other limitations were imposed by the Special Committee or the Board
upon Patricof with respect to the investigations made or procedures followed by
Patricof in rendering its opinion.
Patricof employed several analytical methodologies and no one method of
analysis should be regarded as critical to the overall conclusion it has
reached. Each analytical technique has inherent
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<PAGE> 22
strengths and limitations, and the nature of the available information may
further affect the value of particular techniques. Its conclusion is based on
all the analyses and factors it considered taken as a whole and also on
application of its experience. Such conclusions often involve significant
elements of judgment and qualitative as well as quantitative analysis. Hence,
it expresses no opinion as to the probative force standing alone, of any one or
more parts of the material that follows. Its only opinion is the formal
written opinion that it has expressed as to the fairness from a financial point
of view of the consideration being paid in the transaction. Its opinion,
analyses and all conclusions drawn from such analyses are necessarily based
upon market, economic and other conditions that exist and can be evaluated as
of the date thereof, and on information available to it as of the date thereof.
In delivering its opinion and making its presentations to the Special
Committee and the Board of Directors on October 30, and November 12, 1996,
Patricof considered and presented the financial and comparative analyses of
various indicators of value of the Company set forth below. The financial and
comparative analyses set forth below, including the ranges of share values
implied by such analyses, were based in part upon projections prepared by the
Company. See "Certain Projections."
Patricof's financial analyses employed the following three
types of approaches: (i) a comparative company analysis, (ii) a discounted
cash flow analysis, and (iii) a comparative transaction analysis. In arriving
at its conclusion, Patricof considered, and to some degree utilized, all of the
analyses described below. However, given the relatively short period of time
before the anticipated completion of the Company's Century Village build-out
(approximately two years), and the absence of any direct recreation lease
comparative companies, Patricof viewed the comparative company analysis as less
probative of value than the discounted cash flow analysis or the comparative
transaction analysis. Patricof considered but rejected use of break-up or
liquidation value analyses. Finally, Patricof performed a limited market check
as described below.
COMPARATIVE COMPANY ANALYSIS. In the comparative company
analysis, Patricof compared the Company's financial performance against that of
an array of publicly traded companies usable for comparative purposes, each of
whose primary operations involved home building of single family units
including condominiums and whose primary operations were in Florida. The
companies chosen for comparative purposes were Engle Homes, Inc., Lennar
Corporation, Oriole Homes Corp., and US Home Corporation. In comparing the
Company's financial performance over the most recent three years and the most
recent twelve month ("LTM") period against that of the comparatives, Patricof
observed that: (i) the Company was much smaller than the median of the
comparatives in, among other elements, revenues and earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest
and taxes ("EBIT"); (ii) the Company had experienced high levels of growth in
revenue, EBITDA, EBIT and pre-tax income versus the median over the most recent
three years but had recorded substantially lower growth in the LTM period;
(iii) the Company had stronger EBITDA and EBIT margins versus the median but
lower pre-tax and net income margins; and (iv) the Company had lower returns on
assets and equity and was more leveraged than the median of the comparatives.
From the observations of the Company's financial performance
described above, Patricof concluded that the Company should be priced at a
discount of 5% to the median multiple of the comparatives. Patricof then
applied multiples reflecting this discount to the Company's LTM revenues,
(0.9x), 3 year average revenues, (1.0x), LTM EBITDA, (8.0x), three year average
EBITDA (8.9x), LTM
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<PAGE> 23
EBIT (8.8x) and three year average EBIT (10.1x), to arrive at a range of per
share values from $1.46 to $5.99 before assuming the exercise of outstanding
options to purchase the Company's Common Stock (see "The Merger Agreement -
Stock Options") and from $1.38 to $5.67 after assuming such exercise.
DISCOUNTED CASH FLOW ANALYSIS. Patricof employed two separate
discounted cash flow analyses, in each instance discounting the Company's
projected cumulative cash flows to a present value and adding a sum, based on
the perpetuity method representing the terminal or residual value of the cash
flows, to give recognition to the Company's continuing business (principally
the Century Village recreation lease described under "Certain Projections") in
the years following the discounting period. Using this analysis as a basis,
Patricof performed two separate discounted cash flow analyses. Both analyses
assumed the same Century Village build-out and recreation lease cash flow
projections. However, the less optimistic analysis (the "A" case) projected no
incremental value (net of debt or other expenses) (i) from the sale of Glen
Abbey, (ii) from the sale of the Company's Boca Raton Century Village
administration building; (iii) from the sale of certain commercial buildings at
Century Village; (iv) from the sale of two small tracts of land at Century
Village; (v) from the cash flows of certain small ancillary businesses at
Century Village; and (vi) from possible proceeds of certain litigation in which
the Company is a plaintiff. The more optimistic case (the "B" case) assumed
positive values for all of the items enumerated above. Patricof discounted the
"A" case at a rate of 12.8% and the "B" case at a rate of 13.3% (to give
recognition in the "B" case to the risk of not generating the increased cash
flows described therein). The result of these analyses were per Share values
of $5.75 and $6.04 for the "A" case and "B" case, respectively, before
considering the value resulting from exercise of the stock options mentioned
above, and $5.44 and $5.72 per Share, respectively, assuming such exercise.
The Company's projections included under "Certain Projections" did not give
effect to the incremental values associated with the "B" case because of
management's inability to estimate related cash flows with any degree of
certainty as to either amount or timing.
COMPARATIVE TRANSACTION ANALYSIS. Patricof performed two varieties of
comparative transaction analyses. In one, Patricof analyzed the LTM EBITDA
multiple and control premium (the premium in excess of the target's stock price
30 days before the announcement of the transaction) paid in certain
transactions in 1995 and 1996 involving real estate oriented companies. The
median LTM EBITDA multiple and median control premium paid in such transactions
were 9.7x and 23.2%, respectively, compared with 9.5x and 29.7% in the Merger.
In its second form of comparative transactions analysis, Patricof
reviewed premiums over unaffected stock prices paid in two types of "going
private" transactions which took place during the years 1990 through 1996. One
of these, was an "all transactions" array during the years 1995 - 1996 (through
the date of Patricof's report). A second array, from 1990 - 1996 (through the
date of Patricof's report), involved management's participation in the
transaction. Patricof observed that in the case of both the "all transactions"
group and the "management participation" group, the most frequent range of
control premiums in going private transactions was 20% to 40%, although the
medians were 36.1% and 38.5% for the "all transaction" and the "management
participation" group, respectively.
BREAK-UP AND LIQUIDATION ANALYSES. Patricof considered, but rejected
use of break-up or liquidation value analyses. The break-up approach was
rejected because, after the Company's Century Village build-out is complete,
there will be no material asset that can be broken up other than the Company's
recreation leases (see "Certain Projections"), whose value is included in the
discounted cash
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<PAGE> 24
flow analysis. The liquidation value analysis was rejected because there is no
evidence that individual Company assets such as property, plant and equipment
have any material value.
MARKET CHECK. As part of its analysis, Patricof performed a market
check by contacting a group of companies that, in Patricof's view, had the
industry orientation and financial capacity to make an offer superior to the
one put forth by Mr. Levy and Messrs. Halperin. Patricof contacted a total of
seven companies: Engle Homes, Inc., Hovnanian Enterprises, Inc., Lennar
Corporation, Pulte Corp., Ryland Group, Inc., Starrett Corp. and US Home
Corporation. Patricof sent identical letters to the chief executive officer or
chief operating officer of each such company inviting a superior offer
accompanied by the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1995, the Company's 1995 Annual Report to Stockholders, the
Company's Proxy Statement with respect to its Annual Meeting of Stockholders
held on December 18, 1995, the Company's Quarterly Report on Form 10-Q for the
fiscal period ending April 30, 1996 and a Company press release announcing the
Merger. The mailing was succeeded by two follow-up telephone calls from
Patricof to the addressees of the letters. Specific declinations of interest
were received from three of the companies solicited, and four failed to respond
either to the letters or the phone calls. Thus, no offers from the companies
solicited were received by Patricof
OTHER. Patricof, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. The Special
Committee selected Patricof to act as its financial advisor in connection with
the Merger on the basis of Patricof's national reputation as an investment
banking firm and its experience in transactions of this type.
In connection with its financial advisory services and the delivery of
its opinion, Patricof received a fee of $100,000, which fee was not contingent
upon a favorable opinion. Of such fee, $25,000 was payable on the delivery of
its preliminary opinion, and $25,000 was payable on the delivery of its written
opinion. In addition, the Company has agreed to reimburse Patricof for its
reasonable out-of-pocket expenses incurred during its engagement and to
indemnify Patricof and certain related persons and hold them harmless against
certain liabilities, including certain liabilities under the federal securities
laws, relating to, or arising out of, its rendering of services under its
engagement.
In July 1994, Patricof was retained by Mr. Levy in connection with
finding a strategic investor in CV Reit (as hereinafter defined) or other
alternatives involving a third-party purchase of equity in CV Reit. Mr. Levy
was formerly the chairman of the board of CV Reit and is currently a principal
stockholder. See "Information Concerning Mr. Levy." CV Reit has agreed to pay
Patricof a fee of $150,000 in connection with such engagement. No such
transaction has been consummated yet, and Patricof has been reimbursed for its
costs and expenses incurred but has been paid no portion of such fee. Other
than as described in this paragraph, no material relationship between Patricof
and the Company, or, to the Company's knowledge, its affiliates, has existed in
the past five years, and no such relationship is mutually understood to be
contemplated.
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<PAGE> 25
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the
Merger, stockholders should be aware that certain members of the Board and of
the Company's management have interests that may present them with actual or
potential conflicts of interest.
Mr. Levy, the Chairman of the Board and Chief Executive Officer of the
Company, is the organizer of Mergerco and immediately prior to the Effective
Time will acquire approximately 58.8% of the equity of Mergerco. Mr. Levy
beneficially owns 834,637 Shares of the Company's Common Stock (approximately
35.3% of the outstanding Shares). Immediately prior to the Effective Time,
Messrs. Halperin will collectively acquire approximately 41.2% of the equity
of Mergerco. Together, Messrs. Halperin own 585,032 Shares of the Company's
Common Stock (approximately 24.8% of the outstanding Shares). Following the
Effective Time of the Merger, Mr. Levy will own 58.8% of the outstanding common
stock of the Surviving Corporation, and Messrs. Halperin will collectively own
41.2%. Such ownership will arise from the conversion, upon the consummation
of the Merger, of all of the shares of common stock of Mergerco into all of
the common stock of the Surviving Corporation. Mr. Levy and Messrs. Halperin
intend to enter into a stockholders agreement in connection with their
ownership of the capital stock of the Surviving Corporation. Immediately
prior to the Merger, Mr. Levy and Messrs. Halperin will transfer all of their
respective Shares to Mergerco.
With the exception of Mr. Levy who will serve as president, none of the
current officers of the Company will be the initial officers of the Surviving
Corporation, and, other than Mr. Levy, none of the current directors of the
Company will be the initial directors of the Surviving Corporation. See "The
Merger Agreement - Directors and Officers of the Company Following the Merger;
Certificate of Incorporation."
All executive officers and directors of the Company as a group
currently own 1,087,548 Shares (including Shares issuable upon exercise of
currently exercisable stock options), which amount constitutes 41.8% of the
outstanding Shares. Upon consummation of the Merger, the following directors
and officers will be entitled to the payments indicated in respect of the
Shares they own and options currently exercisable by them to purchase Shares:
<TABLE>
<CAPTION>
TOTAL MERGER
CONSIDERATION TO BE
NUMBER OF SHARES NUMBER OF SHARES SUBJECT RECEIVED WITH RESPECT TO
NAME OWNED OF RECORD(1) TO OPTIONS(2) SHARES AND OPTIONS
- ---------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Michael S. Rubin 0 85,000 $295,000
Jack Jaiven 407 85,000 $297,442
Michael Rich 11,147 45,000 $211,782
James A. Geddes 0 40,000 $122,400
Bernard Green 1,256 10,000 $ 52,536
Harold Cohen 102 10,000 $ 45,612
Antoinette Gleeson 0 5,000 $ 22,500
</TABLE>
- --------------------------
(1) Does not include Shares which such person has the right to acquire pursuant
to options.
(2) The Merger Agreement provides for payments with respect to all Shares
subject to options, whether or not currently exercisable. See "The Merger
Agreement - Stock Options."
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<PAGE> 26
The foregoing options constitute all outstanding options to purchase
the Company's Shares, whether or not currently exercisable, other than options
to purchase 35,000 Shares held by a former employee. Mergerco has agreed in
the Merger Agreement to cause the Surviving Corporation to provide and maintain
directors' and officers' liability insurance and to indemnify the current
directors and officers of the Company subsequent to the Merger. See "The
Merger Agreement-Indemnification and Insurance."
MERGERCO'S REASONS FOR THE MERGER
Mr. Levy and Messrs. Halperin believe that this is an appropriate time
for the Company to consider the Merger because its primary business is expected
to be concluded in less than two years. Therefore, the Company is at a
crossroads and has to determine its future course, which could include
considering whether it is economically feasible to commence a new Century
Village community, whether to start or acquire a different project or business,
whether to pursue some other course or liquidate. Furthermore, the Company's
uncertainty as to its future operations has led its management, Mr. Levy and
Messrs. Halperin to believe that the investment in the Company's Common Stock
held by the unaffiliated stockholders will continue to be illiquid because of
the limited trading market for the Common Stock, and that such unaffiliated
stockholders who wish to liquidate their investment in light of the conclusion
of the Company's core business in the next two years may not be able to obtain
a fair value for such Common Stock on the public market. Moreover, the timing
of Mr. Levy's and Messrs. Halperins' decision to effect the Merger is also
based upon their belief that while the trading market for the Common Stock is
currently limited, trading in the Common Stock may become even more limited as
the completion of the Century Village project approaches.
In addition to the foregoing, neither the Company nor Mr. Levy and
Messrs. Halperin believes that the Company's publicly held status provides any
particular advantage that is not outweighed by the additional costs and
administrative burdens associated with public ownership. If the Company were
privately owned, the Company could reduce its legal and accounting expenses, a
substantial portion of which are incurred in connection with the federal
securities reporting requirements to which publicly held companies are subject,
and could eliminate costs associated with stockholder public relations,
solicitations of proxies and publication of annual reports to stockholders, as
well as transfer agent and other costs. The Company estimates that
out-of-pocket costs associated with public ownership were approximately
$100,000 for the fiscal year ended July 31, 1996, in addition to a substantial
expenditure of management time.
Mr. Levy and Messrs. Halperin also believe the modest trading volume of
the Company's Common Stock in recent years reflects a lack of investor interest
in the stock. These factors inhibit the Company's access to the secondary
markets to raise capital and also limit the potential for stock appreciation.
Under these circumstances, Mr. Levy and Messrs. Halperin believe the Company's
stockholders should have the opportunity to convert their equity investment
into cash at a fair price.
Mr. Levy and Messrs. Halperin did not propose to the Company any other
transactions as alternatives to the Merger, and the Company did not consider
any alternatives, other than the market check performed by Patricof. In
addition, the purpose of the Company, Mergerco, Mr. Levy and Messrs. Halperin
in proceeding with the Merger is for Mr. Levy and Messrs. Halperin to acquire
the entire equity interest of the Company in a transaction providing fair
value to the unaffiliated stockholders. In order to provide a prompt and
orderly transfer of ownership of the minority interest in the Company from the
unaffiliated stockholders to Mr. Levy and Messrs. Halperin (in compliance with
relevant financial, legal and tax considerations), the acquisition was
structured as a merger.
PLANS FOR THE COMPANY AFTER THE MERGER
Mr. Levy and Messrs. Halperin expect that the business and operations
of the Surviving Corporation will be continued by them substantially as they
are currently being conducted by the Company and its subsidiaries. Mr. Levy
and Messrs. Halperin do not currently intend to dispose of any assets of the
Surviving Corporation, other than in the ordinary course of business. It is
anticipated, however, that Mr. Levy and Messrs. Halperin will from time to time
evaluate and review their businesses, operations and properties and make such
changes as are deemed appropriate.
Except as described in this Proxy Statement, none of Mr. Levy, Messrs.
Halperin or the Company has any present plans or proposals involving the
Company or its subsidiaries which relate to or would result in an extraordinary
corporate transaction such as a merger, reorganization, or liquidation, or a
sale or transfer of a material amount of assets, or any material change in the
present dividend policy, indebtedness or capitalization, or any other material
change in the Company's corporate structure or business. However,
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<PAGE> 27
Mr. Levy and Messrs. Halperin will review proposals or may propose the
acquisition or disposition of assets or other changes in the Surviving
Corporation's business, corporate structure, capitalization, management or
dividend policy which they consider to be in the best interest of the Surviving
Corporation and its stockholders.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's public stockholders will no
longer have any interest in, and will not be stockholders of, the Company and,
therefore, will not participate in its future potential earnings and growth and
will not be subject to the risks associated with an investment in the Company.
Instead, each such stockholder will have the right to receive upon consummation
of the Merger $6.00 in cash for each Share held (other than Shares held by
Mergerco, any of its subsidiaries or stockholders who perfect their statutory
appraisal rights under Delaware law) whether or not the Company's future
earnings meet the projections on which the determination of the fairness of the
price was based.
Conversely, if the Merger is consummated, Mr. Levy and Messrs. Halperin
will realize all of the Company's profits and losses, as well as any future
deterioration or improvement in the Company's earnings. Moreover, the
transaction will eliminate potential conflicts of interest between Mr. Levy and
the public stockholders of the Company. The Company's business may present
opportunities or growth in earnings in the future, and, if any such
opportunities or growth are realized, the value of such an equity investment
could be greater than the original cost thereof. However, even if such
opportunities or growth are not realized, Mr. Levy and Messrs. Halperin may
earn an improved return on their investment.
As a result of the Merger, the registration of the Shares under the
Exchange Act will be terminated. In addition, because the Shares would no
longer be publicly held, the Company would be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the Exchange
Act, and its officers, directors, and stockholders owning more than 10% of the
outstanding shares would be relieved of the reporting requirements and "short
swing" trading restrictions under Section 16 of the Exchange Act. Further, the
Company will no longer be subject to the periodic reporting requirements of the
Exchange Act and will cease filing information with the Commission. The
Company will also be de-listed from Nasdaq.
If the Merger Agreement is not adopted by the required vote of the
Company's stockholders, or the Merger is not consummated for any other reason,
the Board of Directors expects that the Company's current management will
continue to operate the Company's business substantially as presently operated.
No other alternatives are presently being considered.
The payments to the Company's stockholders pursuant to the Merger may
be subject to review under state or federal fraudulent transfer or fraudulent
conveyance laws. Under such laws, if a court in a lawsuit by an unpaid
creditor or representative of creditors of the Company, such as a trustee in a
bankruptcy or the Surviving Corporation as debtor-in-possession, were to find
that, at the Effective Time or at the time the Surviving Corporation
distributed the Merger Consideration to the holders of Shares, the
Company or the Surviving Corporation: (a) made such payment with fraudulent
intent, or (b) received less than a reasonably equivalent value or
consideration in exchange for the Merger Consideration and (i) was insolvent,
(ii) was rendered insolvent by reason of such transactions or distributions,
(iii) was engaged in a business, transaction or distribution for which the
assets remaining with
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<PAGE> 28
the Surviving Corporation constituted unreasonably small capital, or (iv)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court could (w) find that the Merger, the
Merger Consideration and the financing thereof constituted fraudulent transfers
or conveyances; (x) void the Merger and require that the Surviving Corporation
return the assets of the Company to a fund for the benefit of the Company's
creditors (including, under certain circumstances, bank lenders and other
holders of debt of the Surviving Corporation); (y) void the distribution of the
Merger Consideration to holders of Shares and require that such holders return
the same (or equivalent amounts) to the Surviving Corporation or a fund for the
benefit of its creditors (including, under certain circumstances, bank lenders
and other holders of debt of the Surviving Corporation.); and (z) void or
modify the rights and obligations relating to the financing of the Merger.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction which is being applied. Generally,
however, the Surviving Corporation would be considered insolvent if the sum of
the Surviving Corporation's debts is greater than all of the Surviving
Corporation's property at a fair valuation, or if the present fair salable
value of the Surviving Corporation's assets is less than the amount that will
be required to pay its probable liability on its existing debts as they become
absolute and matured. No assurance can be given as to what method a court would
use in order to determine whether the Surviving Corporation was "insolvent" at
the Effective Time or that, regardless of the method of valuation, a court
would not determine that the Surviving Corporation was insolvent at the
Effective Time. The avoidance of the distribution of Merger Consideration to
the holders of the Shares as described above could result in such holders being
required to return all or a portion of the Merger Consideration, thereby losing
some or the entire value of their equity investment in the Company.
Management of the Company believe that the payments to be made in
connection with the Merger will be made for proper purposes and in good faith
and that, based on its present projections and other financial information, the
Company is not insolvent and, after giving effect to the Merger and the
transactions contemplated thereby, the Surviving Corporation will not (i) be
insolvent or rendered insolvent thereby, (ii) be engaged or be about to be
engaged in a business or transaction for which its remaining unencumbered
assets constitute unreasonably small capital or (iii) incur debts beyond its
ability to pay as they mature. See "Certain Projections." In reaching such a
conclusion, management have relied upon various cash flow estimates which
necessarily involve a number of assumptions, including assumptions as to the
nature and amount of contingent liabilities and sales and earnings growth and
choices of methodology. However, no assurance can be given that the assumption
and methodologies chosen by management would be adopted by a court, or that a
court would concur as to the solvency of the Company or the Surviving
Corporation.
See "Federal Income Tax Consequences of the Merger to the Company's
Stockholders" for an explanation of the tax consequences of the Merger to
certain stockholders.
The Company believes that the Merger will constitute a redemption,
giving rise to no gain, loss or other income to the Company, for Federal income
tax purposes. The Company will be entitled to deduct amounts it pays in
cancellation of outstanding options to purchase the Company's Common Stock.
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<PAGE> 29
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a conformed copy of which is attached hereto as Exhibit A and
incorporated by reference herein. Such summary is qualified in its entirety by
reference to the text of the Merger Agreement.
THE MERGER
The Merger Agreement provides that, subject to approval of the Merger
Agreement by the holders of a majority of the outstanding Shares, the exercise
of rights to appraisal under the Delaware General Corporation Law by holders of
no more than 5% of the outstanding Common Stock and satisfaction or waiver of
certain other conditions, a duly executed copy of the related Certificate of
Merger will be filed with the Secretary of State of the State of Delaware.
Upon such filing, Mergerco will be merged with and into the Company, the
separate corporate existence of Mergerco will cease, and the Company will
continue, under its name, as the Surviving Corporation. As of the Record Date,
Mr. Levy and Messrs. Halperin collectively held 60.1% of the outstanding
Common Stock. This voting interest will enable them to cast a sufficient
number of votes to approve and adopt the Merger Agreement without the
affirmative vote of any other stockholder.
Upon the Effective Time, each Share (other than Shares held by Mergerco
or any subsidiary of Mergerco or held in the treasury of the Company and other
than Shares held by stockholders who perfect their statutory appraisal rights
under Delaware law) will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted solely into the right to receive $6.00
in cash, without interest, will no longer be outstanding and will be cancelled.
Each share of common stock of Mergerco issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one share of
common stock of the Surviving Corporation.
Holders of Shares who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of Delaware law
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their Shares and payment in cash therefor in lieu of the
Merger Consideration. See "Rights of Dissenting Stockholders."
EFFECTIVE TIME
The Merger will become effective at the date and time of the filing of
a Certificate of Merger with the Secretary of State of the State of Delaware,
which is anticipated to be as soon as practicable after the Meeting. Such
filing will be made, however, only upon satisfaction or waiver of the
conditions contained in the Merger Agreement and provided that no party has
exercised any right of termination under the Merger Agreement.
PAYMENT FOR SHARES
Prior to the Effective Time, Mergerco will designate the Paying Agent.
Promptly after the Effective Time, the Paying Agent will mail or make available
to each stockholder a notice and letter of transmittal containing instructions
for surrendering certificates representing Shares of Common Stock
("Certificates") in exchange for payment thereof. No stockholder should
surrender any Certificates until the stockholder receives the letter of
transmittal and other materials for such surrender. Upon receipt of
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any such Certificates together with a duly executed letter of transmittal and
other requested documents, the Paying Agent will mail a check, in an amount
equal to $6.00 per each Share represented by such Certificates, to the
registered owner or, subject to certain conditions more fully described below,
his or her transferee.
Each Certificate which, prior to the Effective Time, represented
outstanding Shares (other than Shares held by Mergerco or any subsidiary of
Mergerco and stockholders who perfect their statutory appraisal rights under
Delaware law), will, after such time, evidence only the right to receive the
Merger Consideration into which the Shares represented thereby shall have been
converted. No interest will be paid or accrued on the amounts payable upon the
surrender of any such Certificate.
If payment of the Merger Consideration is to be made to a person other
than the person in whose name the Certificate surrendered is registered, it
will be a condition of payment that the Certificate so surrendered will be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment will pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate surrendered, or will establish to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable.
THE EXCHANGE FUND
Immediately prior to or at the Effective Time, Mergerco will deposit or
cause to be deposited with the Paying Agent, in trust for the benefit of the
Company's stockholders (other than Mergerco or any subsidiary of Mergerco and
stockholders who perfect their statutory appraisal rights under Delaware law),
the aggregate Merger Consideration to which such holders of Shares will be
entitled at the Effective Time.
Promptly following the date that is four months after the Effective
Time, the Paying Agent will return to the Surviving Corporation all unpaid
Merger Consideration, and the Paying Agent's duties will terminate.
Thereafter, each holder of a Certificate may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefor the Merger Consideration.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The respective obligations of Mergerco, on the one hand, and the
Company, on the other, to consummate the Merger are subject to the following
conditions, among others: (i) the approval and adoption of the Merger Agreement
by the affirmative vote of the holders of outstanding Shares required by and in
accordance with applicable law; (ii) no statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority against Mergerco
or the Company and be in effect that prohibits or restricts the consummation of
the Merger or makes such consummation illegal; and (iii) Patricof's opinion
shall have been confirmed in writing as of the Effective Time. The obligations
of Mergerco to effect the Merger are subject to the following additional
conditions: (i) there shall have occurred no material adverse change in the
business or financial condition of the Company or its subsidiaries since the
date of the Merger Agreement; (ii) all the covenants in the Merger Agreement
to be complied with or performed by the Company at or before the closing of the
Merger shall have been complied with and performed and the representations and
warranties made by the Company in the Merger Agreement shall be true and
correct in
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<PAGE> 31
all material respects as of the closing of the Merger as if made on and as of
the closing; and (iii) the holders of Shares representing more than 5% of the
total number of Shares outstanding as of the Record Date shall not have
exercised rights to appraisal pursuant to Section 262. The obligations of the
Company to effect the Merger are also subject to the additional condition that
all the covenants in the Merger Agreement to be complied with or performed by
Mergerco shall have been complied with and performed and the representations
and warranties of Mergerco shall be true and correct in all material respects
as of the closing as if made on and as of the closing.
The Merger Agreement contains various customary representations and
warranties of Mergerco and the Company. The representations of Mergerco relate
to due organization, stockholders, corporate authorization, consents and
approvals, absence of breach, financing, interim operations, litigation, and
absence of brokers. The representations of the Company relate to due
organization, capitalization, corporate authorization, absence of certain
changes, filing of Exchange Act reports with the Commission, consents and
approvals, absence of breach, employee benefit matters, litigation, tax
matters, compliance with law, Delaware law relating to takeovers, stockholder
approval, the opinion of Patricof and the absence of brokers.
The Company has agreed to conduct its business in the ordinary and
usual course prior to the Effective Time. In this regard, the Company has
agreed that it will not, without the prior written consent of Mergerco, engage
in certain types of transactions, including, among other things, the issuance
of Shares. In addition, Mergerco and the Company have made further agreements
regarding the Board's recommendation; access to the Company's records;
reasonable efforts to fulfill the conditions to the other party's obligation to
consummate the Merger; indemnification of the Company's officers and directors;
directors' and officers' liability insurance; state takeover statutes;
preparation and filing of this Proxy Statement and the Schedule 13E-3 with the
Commission; notices in connection with the Merger; fees and expenses; and
public announcements. In addition, the Company may not (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Mergerco the approval
or recommendation by the Board of the Merger Agreement or the Merger, (ii)
approve or recommend or propose to approve or recommend any Acquisition
Proposal (as defined below), or (iii) cause the Company to enter into any
agreement with respect to an Acquisition Proposal, unless such action relates
to an Acquisition Proposal that is more favorable to the stockholders of the
Company than the Merger and the Board determines, in good faith, after
consultation with, and based upon the advice of, independent legal counsel,
that such action is necessary for the Board to comply with its fiduciary duties
to the Company's stockholders under applicable law. The term "Acquisition
Proposal" means any inquiry, offer or proposal regarding (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction, (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or substantially all of the assets of the Company
and its subsidiaries, taken as a whole, in a single transaction or series of
related transactions, (iii) any tender offer or exchange offer for 20 percent
or more of the outstanding Shares of the Company or the filing of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), in connection therewith, or (iv) any public announcement or
a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
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<PAGE> 32
STOCK OPTIONS
Promptly after the Effective Time, Mergerco shall pay each holder of
then outstanding options to purchase Shares, whether or not then exercisable
(the "Options"), which have been granted under the Company's Plans, a cash
payment in settlement of the Options (subject to any withholding taxes) in an
amount equal to the excess, if any, of the Merger Consideration over the per
Share exercise price of such Option, multiplied by the number of shares subject
to such Option (the "Option Consideration"). Upon receipt of the Option
Consideration, the relevant Option shall be cancelled. No payment will be made
by the Company in respect of any Option having an exercise price equal to or
greater than the Merger Consideration. At the Effective Time, any such Option
that the holder thereof has not consented to cancellation will be converted
into, and shall only represent the right to receive, the Option Consideration.
Prior to the Effective Time, the Company shall use all reasonable
efforts to obtain all necessary consents or releases from holders of Options
under the Plans and take all other action necessary to give effect to the
transactions described above. Except as otherwise agreed by the parties, both
Plans shall terminate as of the Effective Time, and the Company shall take all
reasonable action to ensure that, after the Effective Time, no person shall
have any right under any Plan (or any Option granted under any Plan) or other
plan, program or arrangement with respect to equity securities of the Company,
the Surviving Corporation or any direct or indirect subsidiary or either.
Without the prior written consent of Mergerco, the Company will not make any
additional grants of stock options, stock bonuses or stock awards under any of
such plans prior to the Effective Time.
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER; CERTIFICATE OF
INCORPORATION
The Merger Agreement provides that Mr. Levy, his son, Mark Levy, his
daughter, Lynn Peseckis, Maurice A. Halperin and Barry S. Halperin will serve
as the five initial directors of the Surviving Corporation. In addition, the
Merger Agreement provides that the initial officers of the Surviving
Corporation will consist of Mr. Levy - President, Mark Levy - Secretary and
Barry S. Halperin - Senior Vice President. Such initial directors and officers
will serve until their respective successors are duly elected and qualified.
See "Special Factors - Interests of Certain Persons in the Merger." Mr. Levy
and Messrs. Halperin intend that the personnel currently managing the day-to-day
operations of the Company will continue in their respective positions with the
Surviving Corporation.
The Certificate of Incorporation of Mergerco will be the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended, except
that Section 1 of Mergerco's Certificate of Incorporation will be amended to
provide that the name of the Surviving Corporation will be "Hilcoast
Development Corp."
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise
provided in the following sentence, all costs and expenses incurred in
connection with the Merger Agreement will be paid by the party incurring the
expense. The Company will pay Mergerco a fee in immediately available funds
equal to $200,000 upon the termination of the Merger Agreement (i) by Mergerco
if the Company's Board of Directors withdraws, modifies or changes its
recommendation or approval in respect of the Merger
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<PAGE> 33
Agreement or the Merger in a manner adverse to Mergerco or the Board approves
or recommends any proposal other than by Mergerco in respect of an Acquisition
Proposal or (ii) by the Company in order to enter into an agreement in respect
of an Acquisition Proposal. See "-Conditions, Representations and Covenants."
TERMINATION; AMENDMENTS
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual written consent of the Special Committee and the
respective Boards of Directors of Mergerco and the Company, or by either of the
Company or Mergerco if (i) the Merger has not been consummated by March 31,
1997, (ii) any court of competent jurisdiction shall have issued an order
(other than a temporary restraining order), decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the purchase of Shares
pursuant to the Merger, provided that the party seeking to terminate the Merger
Agreement shall have used its reasonable best efforts to remove or lift such
order, decree or ruling or (iii) if the opinion of Patricof as to the fairness
of the Merger to the Company's stockholders from a financial point of view is
withdrawn or modified. The Merger Agreement may also be terminated at any time
prior to the Effective Time by the Company if (i) to allow the Company to enter
into an agreement in respect of an Acquisition Proposal, assuming the Company's
Board of Directors has not breached its covenant against withdrawing or
modifying, or proposing to withdraw or modify in a manner adverse to Mergerco,
its approval or recommendation of the Merger Agreement or the Merger, approving
or recommending, or proposing to approve or recommend, any Acquisition Proposal
or causing the Company to enter into any agreement with respect to any
Acquisition Proposal (as described above under "-Conditions, Representations
and Covenants", or (ii) any event or circumstance occurs that renders the
conditions to the Company's performance not able to be satisfied. Mergerco may
terminate the Merger Agreement at any time prior to the Effective Time if (i)
the Company's Board of Directors withdraws, modifies or changes in a manner
adverse to Mergerco its approval or recommendation of the Merger Agreement or
the Merger or approves or recommends any proposal other than by Mergerco in
respect of an Acquisition Proposal or (ii) any event or circumstance occurs
that renders the conditions to Mergerco's performance not able to be satisfied.
The Merger Agreement may be amended by the mutual written agreement by
the parties thereto, evidenced by action taken by the Boards of Directors of
each of Mergerco and the Company, whether before or after stockholder approval;
provided, however, that after any such stockholder approval, no amendment may
be made without the further approval of the stockholders which would reduce the
amount of the Merger Consideration or effect any other change to the Merger
Agreement which would adversely affect the rights of the stockholders of the
Company thereunder.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that all rights to indemnification or
exculpation existing in favor of the directors, officers, employees and agents
of the Company and its subsidiaries as provided in their respective charters or
bylaws or otherwise in effect as of the date of the Merger Agreement with
respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect. To the maximum extent
permitted by Delaware law, such indemnification will be mandatory rather than
permissive, and the Surviving Corporation will advance expenses in connection
with such
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<PAGE> 34
indemnification. In addition to the foregoing rights, and not in limitation of
those rights, the Merger Agreement also provides that Mergerco will cause the
Surviving Corporation to indemnify, defend and hold harmless each present and
former director and officer, employee and agent of the Company and its
subsidiaries to the fullest extent permitted by law for all claims, losses,
damages, liabilities, costs, judgments and amounts paid in settlement,
including advancement of expenses (including attorneys' fees) as incurred in
respect of any threatened, pending or contemplated claim, action, suit or
proceeding, whether criminal, civil, administrative or investigative,
including, without limitation, any action by or on behalf of any or all
security holders of the Company or by or in the right of the Company or the
Surviving Corporation, or investigation relating to any action or omission by
such party in its capacity as such (including service to any other entity,
plan, trust or the like at the Company's request) occurring on or prior to the
Effective Time (including, without limitation, any that arise out of or relate
to the transactions contemplated by the Merger Agreement).
The Merger Agreement provides that the Surviving Corporation will
maintain in effect, for not fewer than six years from the Effective Time, the
policies of directors' and officers' liability insurance most recently
maintained by the Company with respect to claims arising from or related to
matters occurring prior to the Effective Time.
CERTAIN PROJECTIONS
The Company has prepared and provided to the Special Committee and
Patricof certain projected cash flows, principally from the Century Village
build-out and the recreation leases (as described below) and other ancillary
operations, a summary of which is set forth below. Scenario 1 assumes
completion of construction, sale and delivery of the remaining Century Village
condominium apartments by July 31, 1998. Scenario 2 extends the time for
completion for an additional six months until January 31, 1999.
The Company is in the final stages of completing its Century Village
project. After the build-out is complete, the Company's primary asset will be
the recreational leases related to that project. The Company owns all of the
recreation facilities located at Century Village. Each purchaser of a
condominium apartment at Century Village has the option to enter into a 50 year
lease for such facilities, which provides for monthly payments, currently
ranging from $63 to $82, and for specified increases after three years based on
increases in operating costs and fixed contractual increases after five years.
As of October 31, 1996, virtually all of the purchasers of the 7,018
condominium apartments delivered had exercised that option. As indicated in
"Special Factors-Opinion of Financial Advisor-Discounted Cash Flow Analysis,"
the Company's projections did not reflect the potential cash flows from certain
items included in Patricof's "B" case analysis because of uncertainties related
to amount and time.
The Company does not, as a matter of course, make public forecasts or
projections as to future revenues, income or cash flow. These projections were
not prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines by the American Institute of
Certified Public Accountants regarding projections or generally accepted
accounting principles and are included in this Proxy Statement only because
such projections were included in the information submitted to and reviewed by
the Special Committee of the Board and by Patricof. The Company's independent
public accountants have not examined, reviewed or compiled such projections
and, accordingly, do not express any opinion or other form of assurance
thereon. None of Mergerco, the Company, nor any party to
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<PAGE> 35
whom these projections were provided assumes any responsibility for the
accuracy of such information. In addition, because the estimates and
assumptions underlying these projections are inherently subject to significant
economic and competitive uncertainties and contingencies that are beyond the
control of such persons, there can be no assurance that such projections will
be realized, and actual results may be higher or lower than those shown.
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<PAGE> 36
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
-------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scenario 1
----------
Projected cash flow from
operations before debt service
and income taxes $13,396 $22,213 $4,174 $4,285 $4,418 $4,559 $4,669 $4,774 $4,872 $4,961
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Projected cash flow after debt
service and income taxes 0 8,108 1,059 1,075 1,106 1,181 1,224 1,275 1,321 1,360
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Scenario 2
----------
Projected cash flow from
operations before debt service 10,466 18,899 8,198 4,285 4,418 4,559 4,669 4,774 4,872 4,961
and income taxes ======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Projected cash flow after debt
service and income taxes 0 2,279 5,083 1,075 1,106 1,181 1,224 1,275 1,321 1,360
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 37
FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER TO THE COMPANY'S STOCKHOLDERS
Set forth below is a description of certain federal income tax
consequences to stockholders who receive cash for their Shares in the Merger or
upon the exercise of appraisal rights. The discussion is based upon the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code"). The Company will not seek any rulings from the
Internal Revenue Service (the "Service") with respect to the transactions
contemplated hereby. The following discussion is limited to the material
federal income tax aspects of the Merger for a holder of Shares who is a
citizen or resident of the United States and who holds the Shares as capital
assets. This summary does not discuss tax consequences that may be applicable
to stockholders who acquired their Shares of the Company's Common Stock through
the exercise of employee stock options or otherwise as compensation. This
discussion also does not purport to deal with all aspects of taxation that may
be relevant to a particular investor in light of his or her personal
circumstances, to certain types of investors (including insurance companies,
tax-exempt organizations, financial institutions, broker- dealers and foreign
corporations) subject to special treatment under the federal income tax laws or
to any stockholder who is treated as constructively owning any stock of the
Company outstanding after the Merger.
In general, the receipt of cash by a stockholder pursuant to the
Merger or the exercise of appraisal rights will be a taxable event for the
stockholder for federal income tax purposes and may also be a taxable event
under applicable state, local and foreign tax laws. A stockholder will
recognize gain or loss for federal income tax purposes on each Share
surrendered equal to the difference between (i) the amount of cash that he or
she receives for that Share and (ii) his or her tax basis in that Share. That
gain or loss will be capital gain or loss, and will be long-term capital gain
or loss if the stockholder has held that Share for more than one year as of the
Effective Time. The preceding sentence may not apply to a stockholder that
owns, actually and constructively, more than five percent of the Company's
stock. Those stockholders are urged to consult their own tax advisers.
A stockholder may be subject to backup withholding of federal income
tax at a rate of 31 percent on payments made to the stockholder with respect to
Shares converted pursuant to the Merger, unless the stockholder is exempt from
backup withholding or provides the Paying Agent with his or her correct
taxpayer identification number by completing the Substitute Form W-9 to be
included with the letter of transmittal, certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements
of the backup withholding rules. A stockholder who does not provide the Paying
Agent with his or her correct taxpayer identification number may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. The Company will
report to each stockholder and the Service the amount of any "reportable
payments" made to the stockholder and the amount of tax withheld, if any.
Consummation of the Merger is not conditioned upon the receipt by any
person of an opinion of counsel with respect to the tax consequences of the
Merger. The preceding summary was prepared by the Company after consultation
with tax counsel, but no opinion of tax counsel or other tax expert has been
obtained.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH IN THIS PROXY STATEMENT
ARE BASED ON CURRENT LAW AND ARE FOR GENERAL INFORMATION ONLY. THE TAX
CONSEQUENCES FOR A PARTICULAR STOCKHOLDER WILL DEPEND UPON THE FACTS AND
CIRCUMSTANCES APPLICABLE TO SUCH STOCKHOLDER. ACCORDINGLY, EACH STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISER TO DETERMINE THE TAX CONSEQUENCES
TO THE STOCKHOLDER OF THE MERGER IN LIGHT OF HIS OR HER PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND ANY POSSIBLE CHANGES IN THOSE LAWS. THE FOREGOING
DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO
THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
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<PAGE> 38
RIGHTS OF DISSENTING STOCKHOLDERS
The following summary does not purport to be a complete statement of
the provisions of Delaware law relating to the appraisal rights of stockholders
and is qualified in its entirety by reference to the provisions of Section 262
of the Delaware General Corporation Law set forth in full as Exhibit C to this
Proxy Statement.
Holders of record of Shares who comply with the applicable procedures
summarized herein will be entitled to appraisal rights under Section 262 of the
Delaware General Corporation Law. A person having a beneficial interest in
Shares held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect appraisal rights.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER"
ARE TO THE RECORD HOLDER OF SHARES AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL
WITHIN THE MEANING OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.
Stockholders who follow the procedures set forth in Section 262 may
receive, in lieu of the $6.00 cash per Share to be paid in the Merger, a cash
payment equal to the "fair value" of their Shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court. Such fair
value is to be determined by judicial appraisal and could be more than, the
same as, or less than, the Merger Consideration. The statutory right of
appraisal granted by Section 262 is subject to strict compliance with the
procedures set forth below. Failure to follow any of these procedures may
result in a termination or waiver of appraisal rights under Section 262.
It is a condition to the obligations of Mergerco to consummate the
Merger that holders of more than 5% of the outstanding Shares shall not have
exercised rights to appraisal. See "The Merger Agreement-Conditions,
Representations and Covenants."
To be entitled to receive payment of the fair value of the Shares, a
stockholder (i) must file a written demand for appraisal of his or her Shares
with the Company prior to the voting by stockholders on the Merger Agreement at
the Meeting (such demand must reasonably inform the Company of the identity of
the stockholder and that the stockholder intends thereby to demand an appraisal
of his or her Shares); (ii) must not vote his or her Shares in favor of
approval and adoption of the Merger Agreement; and (iii) must have his or her
Shares valued in an appraisal proceeding, as described below. A proxy or vote
against approval and adoption of the Merger Agreement will not satisfy the
requirement that a stockholder file a written demand for appraisal as set forth
above. The requirement of a written demand is separate from, and should not be
confused with, the requirement that a stockholder not vote in favor of approval
and adoption of the Merger Agreement. A failure to vote on the Merger Agreement
will not be construed as a vote in favor of approval and adoption of the Merger
Agreement and will not constitute a waiver of a stockholder's rights of
appraisal. A stockholder who returns a signed proxy indicating that he or she
abstains from voting will similarly not waive his or her rights of appraisal.
However, because a proxy signed and left blank will, unless properly revoked,
be voted in favor of approval and adoption of the Merger Agreement, a
stockholder who returns a signed proxy left blank will waive his or her rights
of appraisal. Therefore, a stockholder electing to exercise appraisal rights
who votes by proxy must not leave his or her proxy blank, but must either vote
against approval and adoption of the Merger Agreement or abstain from voting.
-33-
<PAGE> 39
A holder of Shares wishing to exercise such holder's appraisal rights
must be the record holder of such Shares on the date the written demand for
appraisal is made and must continue to hold such Shares of record until the
Effective Time of the Merger. Accordingly, a holder of Shares who is the
record holder of Shares on the date the written demand for appraisal is made,
but who thereafter transfers such Shares prior to the Effective Time of the
Merger, will lose any right to appraisal in respect of such Shares.
Only a holder of record of Shares is entitled to assert appraisal
rights for the Shares registered in that holder's name. A demand for appraisal
should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificates.
If the Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Shares as
nominee for several beneficial owners may exercise appraisal rights with
respect to the Shares held for one or more beneficial owners while not
exercising such rights with respect to the Shares held for other beneficial
owners; in such case, the written demand should set forth the number of Shares
as to which appraisal is sought , and where no number of Shares is expressly
mentioned the demand will be presumed to cover all Shares held in the name of
the record owner. Stockholders who hold their Shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such a nominee.
If the Merger Agreement is approved and adopted by the stockholders,
the Company or the Surviving Corporation, as the case may be, will send a
notice, either before the Effective Time or within ten days thereafter, stating
that appraisal rights are available to each stockholder who has filed an
adequate written demand for appraisal with the Company and who has not voted in
favor of approval and adoption of the Merger Agreement. Within 120 days after
the Effective Time, the Company or any stockholder seeking appraisal rights may
file a petition in the Court of Chancery demanding a determination of the value
of the Shares of all stockholders seeking appraisal rights. The Company is
under no obligation, and has no present intention, to file such a petition, and
all stockholders seeking to exercise appraisal rights should initiate all
necessary action with respect to the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. Within 120
days after the Effective Time, any stockholder who has complied with the
provisions of Section 262, upon written request, shall be entitled to receive
from the Company a statement setting forth the aggregate number of Shares not
voted in favor of approval and adoption of the Merger Agreement and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such Shares. Such written statement must be mailed to any
such stockholder within ten days after his or her written request for such a
statement is received by the Company or within ten days after expiration of the
period for delivery of demands for appraisal under Section 262(d), whichever is
later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the stockholders
seeking appraisal rights have complied with Section 262 and have thereby become
entitled to appraisal rights. The Court of Chancery will then determine the
fair value of the Shares exclusive of any element of value arising from the
expectation or accomplishment of the Merger, but including a fair rate of
interest, if any, to be paid on the amount determined to be the fair value. In
determining fair value, the Court of Chancery is to take into account all
relevant factors. Stockholders considering appraisal should bear in mind that
the fair market value of their Shares determined under Section 262 could be
more than, the same as, or less than, the consideration they will
-34-
<PAGE> 40
receive pursuant to the Merger Agreement if they do not seek appraisal of their
Shares, and that the written opinion of Patricof set forth as Annex B hereto is
not necessarily an opinion regarding fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered in the appraisal
proceedings.
The Chancery Court will determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose Shares have been
appraised. The costs of the appraisal proceeding may be assessed against one or
more parties to the proceeding as the Court of Chancery may consider equitable.
Upon application by a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceedings (including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts) to be charged pro rata against the
value of all of the Shares entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he
or she (i) does not deliver a written demand for appraisal to the Company prior
to the vote for approval and adoption of the Merger Agreement, (ii) votes his
or her Shares in favor of approval and adoption of the Merger Agreement, (iii)
does not file a petition for appraisal within 120 days after the Effective
Time, or (iv) delivers to the Company both a written withdrawal of his or her
demand for appraisal and an acceptance of the terms of the Merger Agreement,
except that any such attempt to withdraw such demand not made within 60 days
after the Effective Time requires the written approval of the Company. If any
stockholder who properly demands appraisal of such stockholder's Shares under
Section 262 fails to perfect, or effectively withdraws or loses, such
stockholder's right to appraisal as provided in (iii) or (iv) above, the Shares
of such stockholder will be converted into the right to receive the Merger
Consideration receivable with respect to such Shares in accordance with the
Merger Agreement.
If an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal
rights will be entitled to vote his or her Shares for any purpose or to receive
dividends on, or other distributions in respect of, such Shares (except
dividends or distributions payable to stockholders as of a record date prior to
the Effective Time).
Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. Several decisions by the Delaware courts have held that a controlling
stockholder of a company involved in a merger has a fiduciary duty to the other
stockholders which requires that the merger be "entirely fair" to such other
stockholders. In determining whether a merger is fair to minority stockholders,
the Delaware courts have considered, among other things, the type and amount of
consideration to be received by stockholders and whether there was fair dealing
among the parties. The Delaware Supreme Court stated in Weinberger v. UOP,
Inc., 457 A.2d 701, 714 (1983), that although the remedy ordinarily available
in a merger that is found not to be "fair" to minority stockholders is the
right to appraisal described above, such appraisal remedy may not be adequate
"in certain cases, particularly where fraud, misrepresentation, self-dealing,
deliberate waste of corporate assets, or gross and palpable overreaching are
involved," and that in such cases the Chancery Court would be free to fashion
any form of appropriate relief.
-35-
<PAGE> 41
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW
FOR PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN
VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE GENERAL CORPORATION
LAW, STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD
CONSULT THEIR LEGAL ADVISORS.
All written communications from stockholders with respect to the
exercise of appraisal rights should be mailed to Hilcoast Development Corp.,
19146 Lyons Road, Boca Raton, Florida 33434, Attention: Secretary.
FINANCING OF THE MERGER
Mergerco has represented and warranted to the Company in the Merger
Agreement that it has or prior to the Effective Time will have sufficient funds
to enable it to satisfy its obligations to purchase the Shares under the
Merger.
Mergerco has entered into subscription agreements with each of Mr. Levy
and Messrs. Halperin. The subscription agreement with Mr. Levy provides that
immediately prior to the Effective Time, Mr. Levy will receive 4,172 shares of
the common stock of Mergerco and, in consideration therefor, will (i) transfer
to Mergerco all of the 834,637 Shares of the Company's Common Stock owned by
Mr. Levy and (ii) loan to Mergerco up to $4,000,000, which amount shall accrue
interest at the rate of 7.5% per annum and be due and payable 18 months from
the Effective Time. The subscription agreement with Messrs. Halperin provides
that immediately prior to the Effective Time, Messrs. Halperin will receive
2,924 shares of the common stock of Mergerco and, in consideration therefor,
will (i) transfer to Mergerco all of the 585,032 Shares of the Company's Common
Stock owned by Messrs. Halperin and (ii) loan to Mergerco up to $2,800,000,
which amount shall accrue interest at the rate of 7.5% per annum and be due and
payable 18 months from the Effective Time.
In connection with his loan to Mergerco, Mr. Levy has obtained a
commitment from Island National Bank and Trust Company to loan him up to
$3,500,000, which amount, together with accrued and unpaid interest, will be
due two years from the date of such loan; interest will accrue on unpaid
principal at a rate of 8.5% and be payable monthly. Mr. Levy's obligations
under the loan will be secured by certain of the shares of CV Reit common
stock owned by Mr. Levy and held by an affiliate of the bank. In connection
with such loan, Mr. Levy will be required to pay Island National Bank and
Trust Company a fee of $8,750. Mr. Levy does not have any plans or arrangements
to refinance or repay such loan.
In connection with their loan to Mergerco, Messrs. Halperin will
utilize their own funds.
INFORMATION CONCERNING MERGERCO
Mergerco is a newly formed Delaware corporation organized for the sole
purpose of effecting the Merger. It was incorporated on November 15, 1996.
Mr. Levy will contribute 834,637 Shares and Messrs. Halperin will contribute
585,032 Shares, respectively, to Mergerco prior to the Merger. Mergerco will
not receive any payment for such Shares pursuant to the Merger, in each case
constituting all of the Shares owned by Mr. Levy or Messrs. Halperin, as the
case may be. Mergerco does not have, and will not have, any significant assets
or liabilities nor has it engaged, and it will not engage, in any activities
other than those incident to the Merger. Mergerco is wholly-owned by Mr. Levy
and Messrs. Halperin and has its principal office at: c/o The Prentice-Hall
Corporation System, Inc., 1013 Centre Road, Wilmington, Delaware 19805.
Mergerco's telephone number is (561) 640-3100. Mr. Levy and Messrs. Halperin,
Mergerco's sole stockholders, have approved and adopted the Merger Agreement.
-36-
<PAGE> 42
INFORMATION CONCERNING MR. LEVY
Mr. Levy is, and since the formation of the Company in July 1992 has
been, Chairman of the Board of Directors and Chief Executive Officer of the
Company. In addition, he is a principal stockholder and, until his resignation
on July 31, 1992, was Chairman of the Board of CV Reit, Inc., a real estate
investment trust ("CV Reit"). For further discussion concerning Mr. Levy, CV
Reit and the Company, see "Item 1. Business - Certain Transactions and
Relationships" in the Company's Annual Report on Form 10-K for its fiscal year
ended July 31, 1996, as amended, attached hereto as Exhibit B. As of October
31, 1996, Mr. Levy beneficially owned 834,637 Shares (35.3% of outstanding
Shares). Mr. Levy is a United States citizen.
Mr. Levy purchased 600,000 Shares upon the initial capitalization of
the Company in July 1992. Mr. Levy acquired an additional 187,787 Shares from
CV Reit in a spin-off transaction in October 1992 as a stock dividend for no
additional consideration. 24,323 of such Shares were owned by a corporation
controlled by Mr. Levy. On January 19, 1994, Mr. Levy purchased 13,059 Shares
at a price of $5.50 per Share, paid in cash in a private transaction, and on
March 1, 1995, Mr. Levy purchased 1,000 Shares at a price of $4.25 per Share
paid in cash in an open-market transaction. On August 6, 1996, Mr. Levy
purchased from members of Mr. Levy's family and corporations controlled by them
an aggregate of 32,791 Shares at a price of $5.75 per Share, paid in cash in
private transactions. On August 6, 1996, Mr. Levy also purchased from a
corporation controlled by him, in a private transaction, 24,323 Shares at a
price of $5.00 per Share, paid in cash and forgiveness of indebtedness. All of
the 57,114 Shares purchased by Mr. Levy on August 6, 1996 were purchased by him
using his personal funds.
In September 1994, the Company and Mr. Levy entered into an unsecured
revolving credit agreement allowing the Company to borrow up to $750,000 from
Mr. Levy through May 1, 1997, as extended. For a one week period in July 1995,
the outstanding balance under this agreement was increased to $1,030,000, which
amount was reduced to $390,000 by July 31, 1995 and repaid in September 1995.
Since that repayment, the Company has not made any further borrowings under
this agreement.
INFORMATION CONCERNING MESSRS. HALPERIN
Maurice A. Halperin, a United States citizen, is retired and is the
former chairman of the board and chief executive officer of Empire of Carolina,
Inc. ("Empire"), a Delaware corporation engaged in the manufacture, marketing
and distribution of various consumer and food products. Barry S. Halperin, a
United States citizen, is a former director and president of Empire and is
currently the president of a private Massachusetts corporation which he
controls, Halco Industries, Inc. ("Halco"). Barry S. Halperin is the son of
Maurice A. Halperin, and other than as described herein, Messrs. Halperin have
no express agreement, arrangement or understanding regarding the Common Stock
or the Company. The business address of each of Messrs. Halperin is 2500 North
Military Trail, Boca Raton, Florida 33431.
Maurice A. Halperin and Barry S. Halperin initially acquired 40,525 and
22,625 Shares of the Company's Common Stock, respectively, in a spin-off
distribution paid to the stockholders of CV Reit on or about October 26, 1992.
Subsequent to such spin-off and prior to December 2, 1992, Maurice A. Halperin
acquired an additional 119,102 Shares with personal funds in open-market
purchases at an aggregate purchase price of $298,590.01, excluding commissions.
On December 1, 1992, Messrs. Halperin, as a group, beneficially owned 182,252
Shares, or approximately 7.7 % of the outstanding Common Stock on such date.
Messrs. Halperin indicated in the Schedule 13D that they filed with respect of
such initial acquisition of Shares on December 1, 1992 that they shared voting
and dispositive power with respect to the Shares owned by each other and that
they intended to act together
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<PAGE> 43
to further their mutual interests in the Company. Messrs. Halperin have
indicated in all subsequent amendments to such Schedules 13D that they have
filed that they so share voting and dispositive power and have indicated to the
Company for purposes of the preparation of this Proxy Statement that they so
share voting and dispositive power with respect to the Shares of the Company's
Common Stock owned by them.
From December 10, 1992 through July 25, 1994, Maurice A. Halperin
acquired an additional 162,804 Shares with personal funds in open-market
purchases at an aggregate purchase price of $783,320.15. From December 9, 1992
through July 25, 1994, Barry S. Halperin acquired an additional 161,818 Shares
with personal funds in open-market purchases at an aggregate purchase price of
$772,367.04 and an additional 30,758 Shares with personal funds in a private
transaction at an aggregate purchase price of $161,479.50, or $5.25 per Share.
During the fiscal quarter of the Company ended October 31, 1994,
Maurice A. Halperin acquired 10,150 Shares in three open-market purchases at
prices of $4.6875, $4.875 and $5.00 per Share, or an average of $4.83 per
Share. During the same fiscal quarter, Barry S. Halperin acquired 4,750 Shares
in two open-market purchases at $5.00 and $4.6875 per Share, or an average of
$4.79 per Share. During the fiscal quarter of the Company ended April 30,
1995, Maurice A. Halperin acquired 2,000 Shares in on open-market purchase at
$4.75 per Share. During the fiscal quarter of the Company ended July 31, 1995,
Maurice A. Halperin acquired 28,000 Shares in eight open-market purchases at
prices ranging from $4.625 to $5.125 per Share, or an average of $4.88 per
Share. During the same fiscal quarter, Barry S. Halperin acquired 2,500 Shares
in one open-market purchase at $4.625 per Share. As of August 21, 1996,
Messrs. Halperin beneficially owned 585,032 Shares (24.8% of outstanding
Shares).
In October 1991, the Commission filed a complaint in the United States
District Court for the District of Columbia alleging certain violations of the
federal securities laws by Messrs. Halperin and Halco in connection with
transactions in the common stock of HMG Courtland Properties, Inc. ("HMG"), a
real estate investment trust. Without admitting or denying the complaint's
allegations, and simultaneously with the filing of the complaint, Messrs.
Halperin and Halco consented to the entry of permanent injunctions against
future violations of Section 13(d) of the Exchange Act and Rules 12b-20 and
13d-2 promulgated thereunder. Barry S. Halperin consented to the entry of a
permanent injunction against future violations of Section 16(a) of the Exchange
Act and Rule 16a-3 promulgated thereunder. Maurice A. Halperin, Barry S.
Halperin and Halco consented to entries of orders requiring them to pay civil
monetary fines of $50,000, $50,000 and $100,000, respectively. Maurice A.
Halperin also consented to an entry of a permanent injunction against future
violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. Other than as disclosed above, during the last five years, neither
Maurice A. Halperin nor Barry S. Halperin has been convicted in a criminal
proceeding (excluding traffic violations or misdemeanors) or has been a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which either of them was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Small-Cap Market
under the symbol HCDV. The following tables set forth the market price range
of the Common Stock for each quarter during the years ended July 31, 1996 and
1995 and the quarter ended October 31, 1996, based on the high
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<PAGE> 44
and low closing sale prices as reported on the Nasdaq Small-Cap Market. Such
high and low sale prices reflect interdealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
No cash dividends have ever been declared by the Company on the Common Stock.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
--------------------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1995
-----------
First Quarter 4-7/8 4-1/2
Second Quarter 4-7/8 4-1/2
Third Quarter 4-7/8 4-1/2
Fourth Quarter 4-7/8 4-3/8
Fiscal 1996
-----------
First Quarter 4-7/8 4-1/8
Second Quarter 4-3/4 4-1/4
Third Quarter 4-3/4 4-1/4
Fourth Quarter 5 4-1/4
Fiscal 1997
-----------
First Quarter 5-3/8 4-5/8
Second Quarter (through
January __, 1997)
</TABLE>
As of the Record Date, the Company had 2,362,320 shares of Common Stock
outstanding and approximately 350 holders of record of such stock.
The Company has never paid any dividends on the Common Stock. The
Company does not anticipate paying cash dividends on the Common Stock in the
foreseeable future based on its expected operating cash flow requirements (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in each of the Company's Annual
Report on Form 10-K for the fiscal year ended July 31, 1996, as amended, and
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 31, 1996, attached hereto as Exhibits D and E, respectively, and
incorporated herein by reference). The Delaware General Corporation Law
prohibits the Company from paying dividends or otherwise distributing funds
to its stockholders, except out of legally available funds. The declaration
and payment of dividends on the Company's Common Stock and the amount thereof
will be dependent upon the Company's results of operations, financial
condition, cash requirements, future prospects and other factors deemed
relevant by the Board of Directors. No assurance can be given that the
Company will pay any dividends on the Common Stock. The Merger Agreement
provides that, prior to the Effective Time, the Board may not declare dividends
on the Shares without the prior consent of Mergerco.
Mr. Levy delivered a letter to the Company's Board at a meeting held on
Friday, August 9, 1996 in which he proposed the Merger. On the following
Monday, August 12, the Company issued a press release revealing Mr. Levy's
letter, and on the same day, Mr. Levy filed a Schedule 13D under the Exchange
Act with the Commission, to which his letter was attached as an exhibit. The
last sale prices (or, in the absence of trading, the high and low bid and ask
prices) of the Company's Common Stock as reported by Nasdaq on August 5, 6, 7,
8 and 9, 1996, were, respectively: $4- 5/8; $4-5/8 and 5; $4-5/8; $4-5/8 and
4-7/8; and $4-5/8 and 4-7/8. As reported by Nasdaq, on November 12, 1996, the
date the Board approved the Merger Agreement, the high and low bid and ask
prices of the Company's Common Stock as reported by Nasdaq were $5-5/16 and
$5-
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<PAGE> 45
13/16 per Share. As reported by Nasdaq, on November 20, 1996, the last full
trading day prior to the date of execution of the Merger Agreement, the high
and low bid and ask prices were $5-5/16 and $5-13/16 per Share, and on January
__, 1997, the last full trading day prior to the date of this Proxy Statement,
the last sale price was $____ per Share. Stockholders are urged to obtain
current quotations for the Shares.
The following table sets forth the sale price and trading volume of the
Company's Common Stock, as reported by Nasdaq, for the month prior to the
announcement of the proposed Merger on August 12. No sales were effected on
the dates for which no sale price is provided.
<TABLE>
<CAPTION>
VOLUME VOLUME
DATE PRICE TRADED DATE PRICE TRADED
---- ----- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C>
08/09/96 07/26/96
08/08/96 07/25/96
08/07/96 $4.625 1,000 07/24/96
08/06/96 07/23/96
08/05/96 $4.625 262 07/22/96
08/02/96 07/19/96 $4.625 115
08/01/96 07/18/96 $4.625 210
07/31/96 $5.000 500 07/17/96 $4.625 183
07/30/96 $4.625 259 07/16/96
07/29/96 07/15/96
07/12/96
</TABLE>
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<PAGE> 46
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
(i) the Company and its subsidiaries for the three months ended October 31,
1995 and 1996 and for each of the four fiscal years in the period ended July
31, 1996 and (ii) the Company's predecessor (the "Predecessor") for the year
ended October 31, 1991 and the seven months ended May 31, 1992. The
Predecessor reported on an October 31 fiscal year. The Company's operations
commenced in connection with the purchase by the Company of certain assets on
July 31, 1992 from the Predecessor (the "Acquisition"). Allocations were made
by the Company on July 31, 1992 to reflect the fair value of the assets
acquired resulting in asset bases which differ from those of the Predecessor.
In addition, certain of the Company's operating policies and accounting
procedures may be different from those of the Predecessor. Accordingly,
financial data for the periods prior to the Acquisition may not be comparable
to that of the Company. Per share information has not been provided for the
periods prior to the Acquisition since the assets acquired never operated as a
separate, stand-alone company.
The financial information for each of the four fiscal years in the
period ended July 31, 1996 has been derived from audited consolidated financial
statements of the Company. The financial information for the three months
ended October 31, 1995 and 1996 has been derived from unaudited consolidated
financial statements of the Company and, in the opinion of management, includes
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. Operating results for such
unaudited interim periods should not be considered indicative of results to be
expected for the entire year. The financial information for the Predecessor
for the year ended October 31, 1991 has been derived from audited combined
financial statements of the Predecessor, and the financial information for the
Predecessor for the seven months ended May 31, 1992 has been derived from
unaudited combined financial statements of the Predecessor.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, accompanying
notes and other financial information included in the Company's Annual Report
on Form 10-K for the fiscal year ended July 31, 1996, as amended, and the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 31, 1996, attached hereto as Exhibits D and E, respectively, and
incorporated herein by reference.
-41-
<PAGE> 47
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, YEAR ENDED JULY 31,
---------------------------- ------------------------------------------------------
1996 1995 1996 1995 1994 1993
--------- --------- -------- ------- --------- -------
(Unaudited) (dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Sales of condominium apartments $8,529 $7,705 $30,917 $37,340 $35,992 $24,809
========= ========= ======= ======= ========= =======
Total revenues $11,411 $10,446 $43,030 $51,313 $47,236 $35,317
========= ========= ======= ======= ========= =======
Income (loss) before
extraordinary loss $76 ($226) ($438) $605 $289 $209
Extraordinary loss on
modification of debt -- -- -- -- -- --
--------- --------- ------ ------- -------- -------
Net income (loss) 76 (226) (438) 605 289 209
Preferred stock dividends -- -- -- 333 500 502
--------- --------- ------ ------- -------- -------
Net income (loss) applicable to
Common Stock $76 ($226) ($438) $272 ($211) ($293)
========= ========= ====== ======= ======== ======
Net income (loss) per Share $.03 ($.09) ($.19) $.11 ($.09) ($.12)
========= ========= ====== ======= ======== ======
Net income (loss) per Share on a
fully diluted basis $.03 ($.09) ($.19) $.11 ($.09) ($.12)
========= ========= ===== ======= ======== ======
Average Shares considered
outstanding 2,362,320 2,362,320 2,362,320 2,506,562 2,352,320 2,363,286
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Inventories and properties held
for development and sale $29,428 $34,418 $30,234 $35,383 $40,227 $40,088
========= ========= ========= ========= ========= =========
Total assets $52,452 $57,302 $53,595 $58,137 $64,743 $66,402
========= ========= ========= ========= ========= =========
Borrowings $43,344 $47,797 $45,348 $48,611 $49,637 $53,229
========= ========= ========= ========= ========= =========
Stockholders' equity $1,911 $2,047 $ 1,835 $ 2,273(b) $ 6,986 $ 7,197
========= ========= ========= ========= ========= =========
Book Value per Share $.81 $.87 $ .78 $ .96 $ .84 $ .93
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------
Seven Months Year Ended
Ended May 31, October 31,
1992(a) 1991
------------- -----------
(Unaudited)
<S> <C> <C>
OPERATING STATEMENT DATA:
Sales of condominium apartments $10,579 $ 18,784
========= =========
Total revenues $15,832 $ 26,808
========= =========
Income (loss) before
extraordinary loss $(1,935) $ (7,546)
Extraordinary loss on
modification of debt -- (2,792)
--------- ---------
Net income (loss) (1,935) (10,338)
Preferred stock dividends -- --
--------- ---------
Net income (loss) applicable to
Common Stock $(1,935) $(10,338)
========= =========
Net income (loss) per Share N/A N/A
========= =========
Net income (loss) per Share on a
fully diluted basis N/A N/A
========= =========
Average Shares considered
outstanding N/A N/A
========= =========
BALANCE SHEET DATA:
Inventories and properties held
for development and sale $33,720 $ 32,547
========= =========
Total assets $62,837 $ 62,448
========= =========
Borrowings $56,116 $ 54,777
========= =========
Stockholders' equity $ 2,810 $ 3,389
========= =========
Book Value per Share N/A N/A
========= =========
</TABLE>
- ----------------
(a) Comparative financial data for the two months ended July 31, 1992 has not
been presented since the information for that period is not available;
however, management does not believe that the operations during that
period would have caused the operating results which would have been
reported for the nine months ended July 31, 1992 to be materially
different.
(b) On March 31, 1995, the Company redeemed its $5 million of 10% Cumulative
Preferred Stock in exchange for a $5 million note payable.
-42-
<PAGE> 48
INFORMATION AS TO STOCK OWNERSHIP
The following table sets forth, as of the Record Date,
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person known by the Company to beneficially own more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each of the five most highly compensated executive officers of the
Company, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES
----------------------------------------------- -------------------- ------------
<S> <C> <C>
H. IRWIN LEVY 834,637 35.3%
100 Century Blvd.
West Palm Beach, FL 33417
MAURICE A. HALPERIN 585,032(3) 24.8%
BARRY S. HALPERIN
2500 North Military Trail
Boca Raton, FL 33431
ALAN J. EVANS 155,424(4) 6.6%
P.O. Box 727
Palm Beach, FL 33480
ROBERT J. CARTAGENA 133,866(5) 5.7%
P.O. Box 727
Palm Beach, FL 33480
ALAN J. EVANS AND ROBERT J. CARTAGENA, 128,000(6) 5.4%
AS TRUSTEES
P.O. Box 727
Palm Beach, FL 33480
MICHAEL S. RUBIN 85,000(2) 3.5%
JACK JAIVEN 85,407(2) 3.5%
MICHAEL A. RICH 36,147(2) 1.5%
JAMES A. GEDDES 20,000(2) (7)
BERNARD R. GREEN 11,256(2) (7)
583 North Lake Way
Palm Beach, FL 33480
</TABLE>
-43-
<PAGE> 49
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES
- ----------------------------------------------- -------------------- -----------
<S> <C> <C>
JOSEPH D. WEINGARD -- --
185 N.W. Spanish River Blvd.
Boca Raton, FL 33431
All executive officers and directors as a 1,087,548(2) 41.8%
group (9 persons)
</TABLE>
__________________________
(1) Unless otherwise indicated, the address of each beneficial owner listed
is 19146 Lyons Road, Boca Raton, FL 33434.
(2) Unless otherwise indicated, each stockholder listed has the sole power
to vote and direct disposition of the shares of Common Stock shown as
beneficially owned by such stockholder. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of
the following Shares which such person or group has the right to
acquire pursuant to options exercisable within 60 days: Mr. Rubin -
85,000 shares; Mr. Jaiven - 85,000 shares; Mr. Rich - 25,000 shares;
Mr. Geddes - 20,000 shares; Mr. Green - 10,000 shares; and all
executive officers and directors as a group -240,000 shares.
(3) Maurice A. Halperin owns 362,581 of such shares and Barry S. Halperin,
his son, owns 222,451 of such shares. Messrs. Halperin share voting
and dispositive power with respect to the shares of Common Stock owned
by each other. The information with respect to this group is based
solely on Schedule 13D, as amended, as of August 13, 1996, and on
Statements of Changes in Beneficial Ownership on Form 4 filed for May
and June, 1995.
(4) Includes 128,000 shares held by The Claudia Morse Evans Family Trust
for which Mr. Evans is a Trustee and 27,424 shares held by Alan J.
Evans, individually.
(5) Includes 128,000 shares held by The Claudia Morse Evans Family Trust
for which Mr. Cartagena is a Trustee and 5,866 shares held by Robert J.
Cartagena, individually.
(6) Consists of shares held by The Claudia Morse Evans Family Trust for
which Alan J. Evans and Robert J. Cartagena, as Trustees, share voting
and dispositive power. The information with respect to such trust is
based upon Schedule 13D, dated March 7, 1994.
(7) Less than 1%.
-44-
<PAGE> 50
FEES AND EXPENSES
Estimated fees and expenses to be incurred by the Company or Mergerco
in connection with the Merger and the financing assuming the completion thereof
and omitting interest with respect to the financing, are as follows (in
thousands):
<TABLE>
<S> <C>
Financing Fees(1) . . . . . . . . . $ 8,750
Financial Advisors Fees . . . . . . 100,000
Commission Filing Fees . . . . . . 1,345
Legal Fees(2) . . . . . . . . . . . 175,000
Accounting Fees . . . . . . . . . . 2,000
Printing and Mailing Expenses . . . 15,000
Paying Agent Fees . . . . . . . . . 7,500
Special Committee Fee . . . . . . . 100,000
----------
Total(3) . . . . . . . . . . . . . $ 409,595
- --------------
</TABLE>
(1) See "Financing of the Merger."
(2) Includes legal fees, charges and disbursements of the legal advisors
for Mergerco and the Special Committee.
(3) Fees and expenses in the approximate amount of $_________ and
$__________ have been incurred by the Company and Mergerco,
respectively, through the date of this Proxy Statement.
Whether or not the Merger is consummated, and except as otherwise
provided in the following sentence, all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring the expense. The Company will pay Mergerco a fee in immediately
available funds equal to $200,000 upon the termination of the Merger Agreement
(i) by Mergerco if the Company's Board of Directors withdraws, modifies or
changes its recommendation or approval in respect of the Merger Agreement or
the Merger in a manner adverse to Mergerco or the Board approves or recommends
any proposal other than by Mergerco in respect of an Acquisition Proposal or
(ii) by the Company in order to enter into an agreement in respect of an
Acquisition Proposal. See "The Merger Agreement - Fees and Expenses" and
"-Termination; Amendments."
INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman, LLP, certified public accountants, served as the Company's
independent auditors for the fiscal year ended July 31, 1996 and, if the Merger
is not consummated, is expected to so serve for the fiscal year ending July 31,
1997. A representative of BDO Seidman, LLP is expected to be present at the
Meeting. The representative will be afforded an opportunity to make any
statement which he or she may deem appropriate and is expected to be available
to respond to appropriate questions from stockholders, to the extent questions
are permitted.
OTHER BUSINESS
The Board knows of no business to be brought before the Meeting other
than the matters set forth in the attached Notice of Special Meeting of
Stockholders and this Proxy Statement. If, however, any other business should
properly come before the Meeting, the persons named in the accompanying proxy
will vote proxies as in their discretion they may deem appropriate, unless they
are directed by a proxy to do otherwise.
-45-
<PAGE> 51
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Commission, a stockholder
intending to present a proposal to be included in the Company's proxy statement
for the Company's 1996 Annual Meeting of Stockholders (in the event the Merger
is not consummated prior to such date) must deliver a proposal in writing to
the Company's principal executive offices no later than July 23, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Proxy
Statement and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1996, as amended by Amendment No. 1, filed on
November 15, 1996, to the Company's Annual Report on Form
10-K/A for such fiscal year;
(2) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 31, 1996; and
(3) All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act since
July 31, 1996.
Any statement contained in a document incorporated by reference shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement modifies or replaces such
statement. Copies of the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1996, as amended, and the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1996 are attached to this
Proxy Statement as Exhibits D and E, respectively.
The Company undertakes to provide by first class mail, without charge,
to any person to whom a copy of this Proxy Statement has been delivered, within
one business day of the written or oral request of such person, a copy of any
or all of the documents referred to above which have been incorporated in this
Proxy Statement by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference therein).The Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1996, as amended,
attached hereto is accompanied by a list briefly describing all the exhibits
not contained therein. The Company will furnish any exhibit upon the payment
of a specified reasonable fee, which fee will be limited to the Company's
reasonable expenses in furnishing such exhibit. Requests for such copies
should be directed to Secretary, Hilcoast Development Corp., 19146 Lyons Road,
Boca Raton, Florida 33434, telephone number (561) 487-9630.
-46-
<PAGE> 52
AVAILABLE INFORMATION
The Company, Mergerco, Mr. Levy and Messrs. Halperin, have filed a
Schedule 13E-3 under the Exchange Act with the Commission with respect to the
transactions described in this Proxy Statement. A copy of the written report
presented by Patricof to the Special Committee, including Patricof's opinion as
to the fairness of the consideration to be received in the Merger, was filed as
an exhibit to such Schedule 13E-3. Copies of the Schedule 13E-3 are available
for inspection and copying at the principal executive offices of the Company
during regular business hours by any interested stockholder of the Company, or
a representative who has been so designated in writing, and may be inspected
and copied, or obtained by mail by written request directed to Secretary,
Hilcoast Development Corp., 19146 Lyons Road, Boca Raton, Florida 33434,
telephone number (561) 487-9630.
The Company is currently subject to the informational requirements of
the Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Commission relating to its business,
financial and other matters. Such reports, proxy statements and other
information, as well as the Schedule 13E-3, may be inspected and copied (at
prescribed rates) at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, the Commission maintains a Web site with the
address, http://www.sec.gov, that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
By Order Of The Board of Directors
Orilla F. Floyd
Secretary
Boca Raton, Florida
January __, 1997
-47-
<PAGE> 53
APPENDIX A
HILCOAST DEVELOPMENT CORP.
19146 LYONS ROAD
BOCA RATON, FLORIDA 33434
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned holder of Common Stock of Hilcoast Development Corp., a
Delaware corporation (the "Company"), hereby appoints Orilla F. Floyd and Jack
Jaiven, and each of them, as proxies for the undersigned, each with full power
of substitution, for and in the name of the undersigned to act for the
undersigned and to vote, as designated below, all of the shares of Common Stock
of the Company that the undersigned is entitled to vote at the Special Meeting
of Stockholders of the Company, to be held on Thursday, January 30, 1997, at
11:00 a.m., local time, at the Omni Hotel, 1601 Belvedere Road, West Palm Beach,
Florida 33406, and at any adjournment(s) or postponement(s) thereof.
The Board of Directors unanimously recommends a vote FOR the Proposal to
approve and adopt the Merger Agreement (as described in the Company's Proxy
Statement dated January __, 1997).
(1) Proposal to approve and adopt the Merger Agreement (as described in the
Company's Proxy Statement dated January __, 1997).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Upon such other matters as may properly come before the Special Meeting
and any adjournments thereof. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before
the Special Meeting, and any adjournment(s) or postponement(s) thereof.
(SEE REVERSE SIDE)
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT (AS
DESCRIBED IN THE COMPANY'S PROXY STATEMENT DATED JANUARY __, 1997). The
undersigned hereby acknowledges receipt of (i) the Notice of Special Meeting,
(ii) the Proxy Statement, (iii) the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1996, as amended, and (iv) the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1996.
Dated , 1996
------------------------------------
-------------------------------------------------
(Signature)
-------------------------------------------------
(Signature if held jointly)
IMPORTANT: Please sign exactly as your name
appears hereon and mail it promptly even though
you now plan to attend the meeting. When shares
are held by joint tenants, both should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN AND DATE THIS
PROXY CARD AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 54
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
FLA ACQUISITION CORP.
AND
HILCOAST DEVELOPMENT CORP.
Dated November 21, 1996
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Conversion of Common Stock of Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Dissenting Shares; Payment For Shares; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Closing of the Company's Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Authority for this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 Delaware Takeover Statute Inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 Required Vote of the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. Representations and Warranties of Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Authority for this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Interim Operations of Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Recommendation by the Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE> 56
<TABLE>
<S> <C> <C>
5.6 Directors' and Officers' Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.7 State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.10 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Conditions to Both Parties' Obligation to Consummate the Merger . . . . . . . . . . . . . . . . . . . . 18
6.2 Conditions to Mergerco's Obligation to Consummate the Merger . . . . . . . . . . . . . . . . . . . . . 19
6.3 Condition to the Company's Obligation to Consummate the Merger . . . . . . . . . . . . . . . . . . . . 19
7. Termination; Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Enforcement of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Schedule 1.5 -- Directors and Officers of the
Surviving Corporation
Schedule 3.2(a) -- Capitalization
Schedule 3.2(b) -- Subsidiary Securities
Schedule 3.4 -- Absence of Certain Change
Schedule 3.6 -- Consents
Schedule 3.7 -- Employee Benefit Matters
Schedule 3.8 -- Litigation
Schedule 3.9 -- Tax Matters
Schedule 4.2 -- Stockholders of Mergerco
</TABLE>
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AGREEMENT AND PLAN OF MERGER
Dated November 21, 1996
The parties to this agreement and plan of merger are FLA
Acquisition Corp., a Delaware corporation ("Mergerco"), and Hilcoast
Development Corp., a Delaware corporation (the "Company").
The board of directors of each of Mergerco and the Company has
determined it is in the best interests of its stockholders for Mergerco to
acquire the Company upon the terms and subject to the conditions set forth in
this agreement.
Accordingly, the parties agree as follows:
1. The Merger
1.1 The Merger. Upon the terms of this agreement and subject to the
provisions of the Delaware General Corporation Law (the "DGCL"), Mergerco shall
be merged with and into the Company (the "Merger") as soon as practicable
following the satisfaction or waiver, if permissible, of the conditions set
forth in section 6. The Company shall be the surviving corporation in the
Merger (the "Surviving Corporation") under the name "Hilcoast Development
Corp." and shall continue its existence under the law of Delaware. At the
Effective Time (as defined in section 1.2), the separate corporate existence of
Mergerco shall cease.
1.2 Consummation of the Merger. Subject to the provisions of this
agreement, the parties shall cause the Merger to be consummated by filing with
the secretary of state of the state of Delaware a duly executed and verified
certificate of merger, and shall take all other action required by law to
effect the Merger. Prior to the filing referred to in this section, a closing
(the "Closing") shall be held at the offices of Proskauer Rose Goetz &
Mendelsohn LLP, 1585 Broadway, New York, New York (or such other place as the
parties may agree) for the purpose of completing the foregoing. The time the
Merger becomes effective in accordance with applicable law is referred to as
the "Effective Time".
1.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL and this agreement.
1.4 Certificate of Incorporation and Bylaws. The certificate of
incorporation and bylaws of Mergerco, as in effect on the date of this
agreement, shall be the certificate of incorporation and bylaws, respectively,
of the Surviving Corporation; provided, however, that section 1 of the
certificate of incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "Section 1. The name of the Corporation is
Hilcoast Development Corp."
<PAGE> 58
1.5 Directors and Officers. The persons listed on schedule 1.5 shall
be the directors and officers, respectively, of the Surviving Corporation, each
of whom shall serve until his or her respective successor is duly elected and
qualified.
1.6 Conversion of Shares. Each share of common stock, par value $.01
per share, of the Company (each, a "Share"), issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Mergerco or any
subsidiary of Mergerco or held in the treasury of the Company, all of which
shall be cancelled, and other than Dissenting Shares (as defined in section
2.1)) shall, by virtue of the Merger and without any action on the part of the
holder, be converted into the right to receive in cash $6.00 (subject to any
applicable withholding tax, as specified in section 1.9), without interest (the
"Merger Consideration"), upon the surrender of the certificate representing the
Share in accordance with section 2.2.
1.7 Conversion of Common Stock of Mergerco. Each share of common
stock, par value $.01, of Mergerco issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder, be converted into and become one share of common stock of
the Surviving Corporation.
1.8 Stockholders' Meeting. As soon as practicable after the date of
this agreement, the Company, acting through its board of directors, shall, in
accordance with applicable law, duly call, give notice of, convene and hold a
special meeting (the "Special Meeting") of its stockholders at the earliest
practicable date for the purpose of considering and taking action upon the
agreement of merger (within the meaning of section 251 of the DGCL) set forth
in this agreement. Subject to applicable law, the Company shall include in its
proxy statement (together with any schedules required to be filed with the SEC
(as defined in section 3.5) therewith and as amended or supplemented, the
"Proxy Statement") the recommendation of its board of directors that
stockholders of the Company vote in favor of the approval and adoption of the
agreement of merger set forth in this agreement.
1.9 Withholding Taxes. Mergerco shall be entitled to deduct and
withhold from the consideration otherwise payable to a holder of Shares or
Options (as defined in section 2.4) pursuant to the Merger such amounts as are
required under section 3406 of the Internal Revenue Code of 1986 (the "Code").
To the extent amounts are so withheld by Mergerco, the withheld amounts shall
be treated for all purposes of this agreement as having been paid to the holder
of the Shares in respect of which the deduction and withholding was made by
Mergerco.
2. Dissenting Shares; Payment For Shares; Options
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<PAGE> 59
2.1 Dissenting Shares. Notwithstanding anything in this agreement to
the contrary, Shares issued and outstanding immediately prior to the Effective
Time and held by any stockholder who did not vote in favor of the Merger and
complies with section 262 of the DGCL (the "Dissenting Shares") shall not be
converted into or be exchangeable for the right to receive the Merger
Consideration, but, instead, shall be converted into the right to receive such
consideration as may be determined to be due such holder pursuant to the DGCL.
If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost his rights to appraisal under the DGCL, that holder's Shares
shall thereupon be converted into and become exchangeable for the right to
receive, as of the Effective Time, the Merger Consideration without any
interest. The Company shall give Mergerco (a) prompt notice of any written
demands for appraisal of any Shares, attempted withdrawals of such demands and
any other instruments served pursuant to the DGCL and received by the Company
relating to stockholders' rights of appraisal and (b) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under
the DGCL. The Company shall not, except with the prior written consent of
Mergerco, voluntarily make any payment with respect to any demands for
appraisal of capital stock of the Company, offer to settle or settle any
demands or approve any withdrawal of any such demands.
2.2 Payment for Shares
(a) Immediately prior to the Effective Time, Mergerco
shall deposit or cause to be deposited with a bank or trust company to be
selected by Mergerco as paying agent (the "Paying Agent") sufficient funds to
make the payments pursuant to section 1.6 on a timely basis to holders of
Shares issued and outstanding immediately prior to the Effective Time (such
funds, the "Payment Fund"). The Paying Agent shall, pursuant to irrevocable
instructions, make the payments provided for in the preceding sentence out of
the Payment Fund. The Payment Fund shall not be used for any purpose, except
as provided in this agreement.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each record holder of
Shares, as of the Effective Time, a form of letter of transmittal, the form and
content of which shall be reasonably acceptable to the Company (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates representing the Shares (the "Certificates") shall pass, only upon
proper delivery of the Certificates to the Paying Agent), and instructions for
use in effecting the surrender of the Certificates for payment of the Merger
Consideration. Upon surrender to the Paying Agent of a Certificate, together
with the letter of transmittal duly executed, the holder of the Certificate
shall be paid cash in an amount (subject to any applicable withholding tax, as
specified in section 1.9) equal to the product of the number of Shares
represented by the
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<PAGE> 60
Certificate and the Merger Consideration, and the Certificate shall be
cancelled. No interest shall be paid or accrued on the cash payable upon the
surrender of a Certificate. If payment is to be made to a person other than
the person in whose name a Certificate surrendered is registered, it shall be a
condition of payment that the Certificate so surrendered be properly endorsed
or otherwise in proper form for transfer and that the person requesting such
payment pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that the tax has
been paid or is not applicable. From and after the Effective Time and until
surrendered in accordance with this section 2.2, each Certificate (other than
Certificates representing Shares owned by Mergerco or any of its subsidiaries,
and Dissenting Shares) shall represent for all purposes solely the right to
receive in cash an amount equal to the product of the Merger Consideration and
the number of Shares evidenced by the Certificate, without interest.
(c) Any portion of the Payment Fund (including the
proceeds of any investments of the Payment Fund) that remains unclaimed by the
former stockholders of the Company for four months after the Effective Time
shall be repaid to the Surviving Corporation. Any former stockholder of the
Company who has not theretofore complied with section 2.1 shall thereafter look
only to the Surviving Corporation (subject to abandoned property, escheat or
other similar laws) for payment of his claim for the Merger Consideration per
Share, without interest. Neither Mergerco nor the Surviving Corporation shall
be liable to any holder of Shares for any monies delivered from the Payment
Fund or otherwise to a public official pursuant to any applicable abandoned
property, escheat or similar law.
2.3 Closing of the Company's Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
Shares shall thereafter be made. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be cancelled and
exchanged for cash as provided in this section 2, subject to applicable law in
the case of Dissenting Shares.
2.4 Options.
(a) Promptly after the Effective Time, Mergerco shall pay
each holder of a then outstanding Option (as defined below), in settlement of
the Options, for each Share subject to an Option, an amount (subject to any
applicable withholding tax) in cash equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of that Option (that amount,
the "Option Consideration"). Upon receipt of the Option Consideration, the
Option shall be cancelled. The surrender of an Option to the Company in
exchange for the Option Consideration shall be deemed a release of all rights
the holder had or may
4
<PAGE> 61
have had in respect of that Option. For purposes of this agreement, "Option"
means any option, whether or not then exercisable, to purchase Shares under the
Company's 1992 Stock Option Plan or 1995 Stock Option Plan (collectively, the
"Stock Option Plans").
(b) Prior to the Effective Time, the Company shall use
all reasonable efforts to obtain all necessary consents or releases from
holders of Options under the Stock Option Plans and take all other action
necessary to give effect to the transactions contemplated by this section 2.4.
Except as otherwise agreed by the parties, (a) both Stock Option Plans shall
terminate as of the Effective Time and all rights under any provision of any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company or any subsidiary
of the Company shall be cancelled as of the Effective Time, and (b) the Company
shall take all reasonable action to ensure that, after the Effective Time, no
person shall have any right under any Stock Option Plan (or any option granted
under any Stock Option Plan) or other plan, program or arrangement with respect
to equity securities of the Company, the Surviving Corporation or any direct or
indirect subsidiary of either.
3. Representations and Warranties of the Company. The Company represents
and warrants to Mergerco as follows:
3.1 Organization and Qualification. Each of the Company and its
subsidiaries is a duly organized and validly existing corporation in good
standing under the law of its jurisdiction of incorporation, with the corporate
power and authority to own its properties and conduct its business as now being
conducted, and is duly qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the character of the
properties owned or held under lease by it or the nature of the business
transacted by it makes such qualification necessary, except where the failure
to be so qualified and in good standing would not have a Material Adverse
Effect (as defined below). The Company has made available to Mergerco accurate
and complete copies of the certificates of incorporation and bylaws as
currently in effect of the Company and each of its subsidiaries.
For purposes of this agreement, "Material Adverse Effect" means any
adverse change in the business or financial condition of the Company or its
subsidiaries that is material to the Company and its subsidiaries taken as a
whole.
3.2 Capitalization
(a) The authorized capital stock of the Company consists of
6,000,000 Shares and 10,000 shares of preferred
5
<PAGE> 62
stock, $.01 par value (the "Preferred Stock"). As of the close of business on
November 21, 1996, 2,362,320 Shares were issued and outstanding; no shares of
Preferred Stock were issued or outstanding; no Shares were held in the
Company's treasury; and there were outstanding Options to purchase an aggregate
of 315,000 Shares under the Company's Stock Option Plans (copies of which have
previously been furnished to Mergerco). Since September 1, 1996, the Company
(i) has not issued any Shares, other than upon the exercise of Options then
outstanding, (ii) has not granted any options or rights to purchase Shares
(under the Company's Stock Option Plans or otherwise) and (iii) has not split,
combined or reclassified any of its shares of capital stock. All the
outstanding Shares have been duly authorized and validly issued and are fully
paid and nonassessable and are free of preemptive rights. Except as set forth
in this section 3.2 or on schedule 3.2(a) to this agreement, there are no
outstanding (i) shares of capital stock or other voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options,
warrants, rights or other agreements or commitments to acquire from the
Company, or obligations of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company, or obligations of the Company to grant,
extend or enter into any subscription, warrant, right, convertible or
exchangeable security or other similar agreement or commitment (the items in
clauses (i), (ii) and (iii), collectively, the "Company Securities"). Except
as set forth on schedule 3.2(a), there are no outstanding obligations of the
Company or any subsidiary to repurchase, redeem or otherwise acquire any
Company Securities and there are no other outstanding stock related awards.
Except as set forth on schedule 3.2(a), there are no voting trusts or other
agreements or understandings to which the Company or any of its subsidiaries is
a party with respect to the voting of capital stock of the Company or any of
its subsidiaries.
(b) Except as set forth on schedule 3.2(b), the Company
is, directly or indirectly, the record and beneficial owner of all the
outstanding shares of capital stock of each of its subsidiaries, free and clear
of any lien, mortgage, pledge, charge, security interest or encumbrance, and
there are no irrevocable proxies with respect to any such shares. Except as
set forth on schedule 3.2(b), there are no outstanding (i) securities of the
Company or any subsidiary convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
subsidiary, or (ii) options or other rights to acquire from the Company or any
of its subsidiaries, or other obligations of the Company or any of its
subsidiaries to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for any
capital stock, voting securities or ownership interests in, any of its
subsidiaries, or other
6
<PAGE> 63
obligations of the Company or any of its subsidiaries to grant, extend or enter
into any subscription, warrant, right, convertible or exchangeable security or
other similar agreement or commitment (the items in clauses (i) and (ii),
collectively, the "Subsidiary Securities"). Except as set forth on schedule
3.2(b), there are no outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
3.3 Authority for this Agreement. The Company has the requisite
corporate power and authority to execute and deliver this agreement and to
consummate the transactions contemplated by this agreement. The execution and
delivery of this agreement by the Company and the consummation by the Company
of the transactions contemplated by this agreement have been duly and validly
authorized by the board of directors of the Company and no other corporate
proceeding on the part of the Company is necessary to authorize this agreement
or to consummate the transactions so contemplated (other than the approval and
adoption of the agreement of merger (within the meaning of section 251 of the
DGCL) in this agreement by the holders of a majority of the Shares prior to the
consummation of the Merger). This agreement has been duly and validly executed
and delivered by the Company and, assuming this agreement constitutes the valid
and binding obligation of Mergerco, constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject to general
principles of equity (whether considered in a proceeding in equity or at law).
3.4 Absence of Certain Changes. Except as disclosed in the SEC
Reports (as defined in section 3.5) or on schedule 3.4, since June 30, 1996:
(a) the Company and its subsidiaries have not suffered any Material Adverse
Effect, (b) the Company and its subsidiaries have conducted their respective
businesses in all material respects only in the ordinary course consistent with
past practice, except in connection with the negotiation and execution and
delivery of this agreement and the exploration of other alternative
transactions, and (c) there has not been (i) any declaration, setting aside or
payment of any dividend or other distribution in respect of the Shares or any
repurchase, redemption or other acquisition by the Company or any of its
subsidiaries of any outstanding shares of capital stock or other securities in,
or other ownership interests in, the Company or any of its subsidiaries; (ii)
any entry into any written employment agreement with, or any increase in the
rate or terms (including, without limitation, any acceleration of the right to
receive payment) of compensation payable or to become payable by the Company or
any of its subsidiaries to, their respective directors or officers; (iii) any
increase in the rate or terms (including, without limitation, any acceleration
of the right to
7
<PAGE> 64
receive payment) of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers
or key employees, except increases occurring in the ordinary course of business
or as required by law or as necessary to maintain tax-qualified status; or (iv)
any action by the Company that, if taken after the date of this agreement,
would constitute a breach of section 5.1.
3.5 Reports
(a) The Company has filed with the Securities and
Exchange Commission (the "SEC") all forms, reports and documents required to be
filed by it pursuant to applicable law since January 1, 1994 (the "SEC
Reports"), all of which have complied as of their respective filing dates in
all material respects with all applicable requirements of the Exchange Act and
the rules under the Securities Exchange Act of 1934 (the "Exchange Act"). None
of the SEC Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference in the SEC Reports, at the time
filed, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The audited and unaudited consolidated financial
statements of the Company included (or incorporated by reference) in the SEC
Reports have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis (except to the extent set
forth in those financial statements, including the notes, if any) and present
fairly in all material respects the consolidated financial position of the
Company as of their respective dates, and the consolidated results of
operations and changes in financial condition and cash flows for the periods
presented, subject, in the case of the unaudited interim financial statements,
to normal, recurring, year-end adjustments and the absence of such footnotes as
may be omitted in unaudited interim financial statements prepared in accordance
with United States generally accepted accounting principles.
3.6 Consents and Approvals; No Violation. Neither the execution and
delivery of this agreement by the Company nor the consummation of the
transactions contemplated by this agreement will, except as disclosed on
schedule 3.6, (a) conflict with or result in a breach of any provision of the
certificate of incorporation or bylaws (or other similar governing documents)
of the Company or any of its subsidiaries; (b) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (i) pursuant to the Exchange Act, (ii) the
filing of a certificate of merger pursuant to the DGCL, or (iii) any
8
<PAGE> 65
applicable filings under state securities, or "Blue Sky", laws or state
anti-takeover laws; (c) result in a material default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, license, agreement or other
instrument or obligation to which the Company is a party or by which the
Company or any of its assets or subsidiaries may be bound; or (d) violate in
any material respect any material order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any of its subsidiaries or by
which any material portion of their respective assets are bound.
3.7 Employee Benefit Matters
(a) Schedule 3.7 sets forth a true and complete list of
all employee benefit plans, arrangements and agreements maintained, or that
have been maintained, by the Company, any of its subsidiaries, or by any trade
or business, whether or not incorporated that, together with the Company, would
be deemed a "single employer" within the meaning of section 414(b), (c), (m) or
(o) of the Code or section 4001 of the Employee Retirement Income Security Act
of 1974 ("ERISA") (a "ERISA Affiliate") (collectively, the "Plans").
(b) Each Plan is and has been operated and administered
in all material respects in accordance with the terms of the Plan and in
accordance with the requirements prescribed by all applicable statutes, orders
and governmental rules and regulations, including ERISA and the Code. Each
Plan intended to be "qualified" within the meaning of section 401(a) of the
Code is so qualified.
(c) Neither the Company nor any ERISA Affiliate nor any
of their respective predecessors has contributed to or contributes to, or
otherwise participated in or participates in, a plan subject to section 412 of
the Code or Title IV of ERISA. No Plan is a multiemployer plan (within the
meaning of sections 3(37) or 4001(a)(3) of ERISA or section 413 of the Code
("Multiemployer Plan") and no Plan is a multiple employer plan as defined in
section 413 of the Code ("Multiple Employer Plan"); and all material
contributions or other amounts payable by the Company or any of its
subsidiaries as of June 30, 1996 with respect to each Plan in respect of
current or prior plan years have been either paid or accrued on the balance
sheet of the Company. Neither the Company nor any ERISA Affiliate is or was
obligated to contribute to any Multiemployer Plan or Multiple Employer Plan.
To the knowledge of the Company, there are no material pending, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any Plan or any related trust.
3.8 Litigation, etc. Except as set forth on schedule 3.8 or as
disclosed in the SEC Reports, there is no claim, action,
9
<PAGE> 66
proceeding or governmental investigation pending or, to the knowledge of the
Company, threatened against the Company, any of its subsidiaries or in respect
of any Plan before any court or governmental or regulatory authority that,
individually or in the aggregate, (a) could reasonably be expected to have a
Material Adverse Effect or (b) has had or could reasonably be expected to have
a material adverse effect on the ability of the Company to consummate the
transactions contemplated by this agreement or in any manner challenges or
seeks to prevent, enjoin or delay the Merger.
3.9 Tax Matters
(a) Except as set forth on schedule 3.9 or in the SEC
Reports:
(i) All returns and reports relating to income, franchise
and all material other taxes required to be filed with respect to each
of the Company and its subsidiaries or any of their income, properties
or operations have been duly filed in a timely manner (taking into
account all extensions of due dates), and, to the knowledge of the
Company, all information in such returns and reports is true, correct
and complete in all material respects. All taxes attributable to each
of the Company and its subsidiaries that were shown to be due and
payable on such returns and reports have been paid.
(ii) Adequate provisions in accordance with United States
generally accepted accounting principles consistently applied have
been made in the consolidated financial statements included in the SEC
Reports for the payment of all material taxes for which any of the
Company or its subsidiaries may be liable for the periods covered by
those financial statements that were not yet due and payable as of the
dates of those financial statements, regardless of whether the
liability for those taxes is disputed.
(iii) The Company has not received any notice of deficiency
or assessment from any federal, state or local taxing authority with
respect to liabilities for taxes of the Company or any of its
subsidiaries that have not been fully paid or finally settled. There
is presently no tax audit, administrative proceeding being conducted
with respect to the Company or any of its subsidiaries.
(iv) There is no contract, agreement or intercompany
account system under which the Company or any of its subsidiaries has,
or may at any time in the future have, an obligation to contribute to
the payment of any portion of a tax (or pay any amount calculated with
reference to any portion of a tax) of any group of corporations of
which the Company or its subsidiaries is or was a part.
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<PAGE> 67
(b) There are no agreements in effect to extend the
period of limitations for the assessment or collection of any income, franchise
or material other tax for which the Company or any of its subsidiaries may be
liable.
3.10 Compliance with Law. Except as set forth in the SEC Reports, to
the knowledge of the Company, the business of the Company and its subsidiaries
is being conducted in compliance with all applicable laws, orders, rules or
regulations of any governmental authority, except to the extent non-compliance
could not reasonably be expected to have a Material Adverse Effect.
3.11 Delaware Takeover Statute Inapplicable. The board of directors
of the Company has approved the transactions contemplated by this agreement
upon the terms specified in this agreement, which will result in Mergerco
becoming an "interested stockholder", within the meaning of section 203(a)(1)
of the DGCL.
3.12 Fairness Opinion. Patricof & Co. Capital Corp. ("Patricof"),
the independent financial advisor to the independent committee of the Company's
board of directors, has delivered to the Company its opinion that the
consideration to be paid to the Company's stockholders in the Merger is fair,
from a financial point of view, to those stockholders, and, as of the date of
this agreement, that opinion has not been withdrawn or modified. The Company
has delivered to Mergerco a true and complete copy of such opinion.
3.13 Required Vote of the Company's Stockholders. The only vote of
the stockholders of the Company required to approve and adopt the plan of
merger in this agreement and approve the Merger is the affirmative vote of
holders of not less than the majority of the outstanding Shares.
3.14 Brokers. No broker, finder or other investment banker is
entitled to receive any brokerage, finder's or other fee or commission in
connection with this agreement or the transactions contemplated by this
agreement based upon agreements made by or on behalf of the Company.
4. Representations and Warranties of Mergerco. Mergerco represents and
warrants to the Company as follows:
4.1 Organization. Mergerco is a duly organized and validly existing
corporation in good standing under the law of the state of Delaware, with all
requisite corporate power and authority to own its properties and conduct its
business.
4.2 Stockholders. Schedule 4.2 lists all the stockholders of
Mergerco. Each such stockholder is the record and beneficial
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<PAGE> 68
owner of the number of shares of common stock, par value $.01 per share, of
Mergerco set forth opposite his name on schedule 4.2.
4.3 Authority for this Agreement. Mergerco has full corporate power
and authority to execute and deliver this agreement and to consummate the
transactions contemplated by this agreement. The execution and delivery of
this agreement by Mergerco and the consummation by Mergerco of the transactions
contemplated by this agreement have been duly and validly authorized by the
board of directors and stockholders of Mergerco and no other corporate
proceeding on the part of Mergerco is necessary to authorize this agreement or
to consummate the transactions contemplated by this agreement. This agreement
has been duly and validly executed and delivered by Mergerco and, assuming this
agreement constitutes a valid and binding obligation of the Company, this
agreement constitutes the valid and binding agreement of Mergerco, enforceable
against Mergerco in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and subject to general principles of equity (whether
considered in a proceeding in equity or at law).
4.4 Consents and Approvals; No Violation. Neither the execution and
delivery of this agreement by Mergerco nor the consummation of the transactions
contemplated by this agreement will (a) conflict with or result in a breach of
any provision of the certificate of incorporation or bylaws of Mergerco; (b)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (i) pursuant
to the Exchange Act, (ii) the filing of a certificate of merger pursuant to the
DGCL, (iii) any applicable filings under state securities, or "Blue Sky", laws
or state anti-takeover laws; (c) result in a default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument or
obligation to which Mergerco is a party or by which any of its assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
that would not materially and adversely affect the ability of Mergerco to
consummate the transactions contemplated by this agreement; or (d) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Mergerco or any of its assets, except for violations that would not materially
adversely affect the ability of Mergerco to consummate the transactions
contemplated by this agreement.
4.5 Financing. Mergerco has or, prior to the Effective Time, shall
have, sufficient funds to enable it to satisfy its obligations to purchase the
Shares under the Merger.
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4.6 Interim Operations of Mergerco. Mergerco was formed solely for
the purpose of engaging in the transactions contemplated by this agreement, and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated by this agreement.
4.7 Litigation, etc. There is no claim, action, proceeding or
governmental investigation pending or, to Mergerco's knowledge, threatened
against Mergerco that, individually or in the aggregate, has had or could
reasonably be expected to have a material adverse effect on the ability of
Mergerco to consummate the transactions contemplated by this agreement or in
any manner challenges or seeks to prevent, enjoin or delay the Merger.
4.8 Brokers. No broker, finder or other investment banker is
entitled to any brokerage, finder's or other similar fee or commission in
connection with this agreement or the transactions contemplated by this
agreement based upon agreements made by or on behalf of Mergerco or its
affiliates.
5. Covenants
5.1 Conduct of Business of the Company. Except as contemplated by
this agreement, from the date of this agreement to the Effective Time, the
Company shall, and shall cause its subsidiaries to, conduct its and their
operations in all material respects in the ordinary course and consistent with
past practice and use all reasonable efforts to preserve intact their business
organizations and to maintain existing relationships with those having
significant business relationships with them. Without limiting the foregoing
and except as contemplated by this agreement, during the period specified in
the preceding sentence, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior written consent of Mergerco (which consent
shall not be unreasonably withheld), (a) except for issuances of capital stock
of the Company's subsidiaries to the Company or to a wholly-owned subsidiary of
the Company, issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of (i) additional shares of capital stock of any class (including the
Shares) or any other ownership interest in any of its subsidiaries, or
securities convertible into or exchangeable for any such shares or ownership
interest or any rights, warrants or options to acquire or with respect to any
such shares of capital stock, ownership interest or other convertible or
exchangeable securities, or grant or accelerate any right to convert or
exchange any securities for any such shares (including the Shares) or ownership
interest, other than Shares issuable upon exercise of the Options, or (ii) any
other securities in respect of, in lieu of or in substitution for Shares
outstanding on the date of this agreement; (b) otherwise acquire or redeem,
directly or indirectly, any of its outstanding securities (including the
Shares); (c) split, combine or reclassify its
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capital stock or declare, set aside, make or pay any dividend or distribution
(whether in cash, stock or property) on any shares of capital stock of the
Company or any of its subsidiaries (other than cash dividends paid to the
Company by its wholly-owned subsidiaries); (d) make any acquisition, by means
of a merger or otherwise, of assets or securities, or any sale, lease,
encumbrance or other disposition of assets or securities, in each case other
than in the ordinary course of business and in circumstances not requiring
approval of its board of directors; (e) incur or assume any debt for borrowed
money, except in the ordinary course of business consistent with past practice,
including borrowings under the Company's existing lines of credit with CV Reit,
Inc. and H. Irwin Levy; (f) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person (except wholly-owned subsidiaries of the
Company), except in the ordinary course of business; (g) make any loans,
advances or capital contributions to, or investments in, any other person
(except wholly-owned subsidiaries of the Company), in each case other than in
the ordinary course of business; (h) change any of the accounting principles or
practices used by it or any of its subsidiaries, except as required by the SEC
or by United States generally accepted accounting principles; (i) make any tax
election not required by law or settle or compromise any federal, state or
local income tax liability, in each case that is material to the Company and
its subsidiaries taken as a whole; (j) adopt any amendments to its certificate
of incorporation or bylaws; (k) grant any stock related or performance awards;
(l) forgive any loans to employees, officers or directors of more than $10,000
with respect to any particular individual; (m) enter into any new employment,
severance, consulting or salary continuation agreements with any officer,
director or employee other than as contemplated by this agreement; (n) adopt,
amend or terminate any material employee benefit plan, except in the ordinary
course of business or as required by law or as necessary to maintain tax
qualified status; or (o) agree in writing or otherwise to take any of the
foregoing actions or any action that would make any representation or warranty
in this agreement untrue or incorrect in any material respect as of the date
when made or as of a future date or otherwise would result in any of the
conditions to the Merger not being satisfied.
5.2 Recommendation by the Board of Directors. Except as set forth in
this section 5.2, the board of directors of the Company shall not (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Mergerco,
the approval or recommendation by the board of directors of this agreement or
the Merger, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal (as defined below) or (iii) cause the Company to enter
into any agreement with respect to any Acquisition Proposal. The Company shall
use reasonable efforts to keep Mergerco informed of the status of any
Acquisition Proposal (unless the board of directors of the Company determines
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in good faith after consultation with and based upon the advice of independent
legal counsel that keeping Mergerco so informed would breach the fiduciary
duties of the board in connection with a Superior Proposal (as defined below)).
Notwithstanding the foregoing, in the event that prior to the Effective Time
the board of directors of the Company determines in good faith, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the board of directors of the
Company may withdraw or modify its approval or recommendation of this agreement
and the Merger, approve or recommend an Acquisition Proposal that is more
favorable to the stockholders of the Company than the Offer and the Merger (a
"Superior Proposal") or cause the Company to enter into an agreement with
respect to a Superior Proposal. The Company shall provide reasonable notice to
Mergerco to the effect that it is taking such action. If the Company proposes
to enter into an agreement with respect to any Superior Proposal, it shall
concurrently with proposing such an agreement pay, or cause to be paid, to
Mergerco the fee provided for in section 5.10.
For purposes of this agreement, "Acquisition Proposal" means
an inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this agreement with Mergerco) involving the
Company: (w) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (x) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of related transactions; (y) any
tender offer or exchange offer for 20 percent or more of the outstanding shares
of capital stock of the Company or the filing of a registration statement under
the Securities Act of 1933 in connection therewith; or (z) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
5.3 Access to Information
(a) Subject to any limitations imposed by applicable law,
between the date of this agreement and the Effective Time, the Company shall
(i) give Mergerco and its authorized representatives all reasonable access
(during regular business hours upon reasonable notice) to all employees,
plants, offices, warehouses and other facilities and to all books and records
(including, without limitation, tax returns) of the Company and its
subsidiaries and cause the Company's and its subsidiaries' independent
accountants to provide access to their work papers and such other information
as Mergerco may reasonably request, (ii) permit Mergerco to make such
inspections as it may reasonably require and (iii) cause its officers and those
of its subsidiaries to furnish Mergerco with such financial and
15
<PAGE> 72
operating data and other information with respect to the business, properties
and personnel of the Company and its subsidiaries as Mergerco may from time to
time reasonably request.
(b) Prior to the Effective Time, Mergerco shall keep
confidential, and shall use its best efforts to cause its affiliates,
associates and representatives to keep confidential, all proprietary and
confidential information obtained by Mergerco pursuant to this section 5.3 that
does not become publicly available through other means (the "Confidential
Information"). Mergerco shall use the Confidential Information only in
connection with the transactions contemplated by this agreement.
5.4 Reasonable Efforts. Each party shall agree to use all reasonable
efforts to cause the fulfillment, in the most expeditious manner practicable,
of all the conditions to the other party's obligation to consummate the Merger.
5.5 Indemnification
(a) Mergerco agrees that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of the Company and its subsidiaries as provided in their respective
charters or bylaws or otherwise in effect as of the date of this agreement with
respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect. To the maximum extent
permitted by the DGCL, such indemnification shall be mandatory rather than
permissive, and, pursuant to Section 145(e) of the DGCL, the Surviving
Corporation shall advance expenses in connection with such indemnification.
(b) In addition to the rights provided for in section
5.5(a), and not in limitation of those rights, Mergerco shall cause the
Surviving Corporation to indemnify, defend and hold harmless each present and
former director and officer, employee and agent of the Company and its
subsidiaries ("Indemnified Parties") to the fullest extent permitted by law for
all claims, losses, damages, liabilities, costs, judgments and amounts paid in
settlement, including advancement of expenses (including attorneys' fees) as
incurred in respect of any threatened, pending or contemplated claim, action,
suit or proceeding, whether criminal, civil, administrative or investigative,
including, without limitation, any action by or on behalf of any or all
securityholders of the Company or by or in the right of the Company or the
Surviving Corporation, or investigation relating to any action or omission by
such party in its capacity as such (including service to any other entity,
plan, trust or the like at the Company's request) occurring on or prior to the
Effective Time (including, without limitation, any that arise out of or relate
to the transactions contemplated by this agreement).
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<PAGE> 73
(c) The provisions of this section 5.5 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her personal representatives.
5.6 Directors' and Officers' Insurance. The Surviving Corporation
shall maintain in effect for not fewer than six years from the Effective Time
the policies of directors' and officers' liability insurance most recently
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies with reputable and financially sound carriers of
at least the same coverage and containing terms and conditions no less
advantageous, as long as such substitution does not result in gaps or lapses in
coverage) with respect to claims arising from or related to matters occurring
prior to the Effective Time; provided, however, that in no event shall the
Surviving Corporation be required to expend more than an amount per year equal
to 200% of the current annual premiums paid by the Company (the "Premium
Amount") to maintain or procure insurance coverage pursuant to this section
5.6; and further provided that, if the Surviving Corporation is unable to
obtain the insurance called for by this section 5.6, the Surviving Corporation
shall obtain as much comparable insurance as is available for the Premium
Amount per year.
5.7 State Takeover Statutes. The Company shall, upon the request and
at the expense of Mergerco, take all reasonable steps to assist in any
challenge by Mergerco to the validity, or applicability to the Merger, of any
state takeover law.
5.8 Proxy Statement. The Company shall prepare and file with the
SEC, and in consultation with Mergerco, as soon as practicable after the date
of this agreement, a preliminary proxy or information statement (the
"Preliminary Proxy Statement") and a transaction statement on schedule 13E-3
(as amended or supplemented, the "Schedule 13E-3") relating to the Merger in
accordance with the Exchange Act and the rules and regulations under the
Exchange Act, with respect to the transactions contemplated by this agreement.
The Company and Mergerco shall cooperate with each other in the preparation of
the Preliminary Proxy Statement. Each of the Company and Mergerco agrees that
none of the information supplied or to be supplied by it or any of its
affiliates specifically for inclusion in the Proxy Statement and/or the
Schedule 13E-3 shall, on the date the Proxy Statement is mailed and at the time
of the Special Meeting or the Schedule 13E-3 is filed with the SEC, contain any
untrue statement of material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Company shall use all reasonable efforts to respond promptly to any comments
made by the SEC with respect to the Preliminary Proxy Statement, and to
17
<PAGE> 74
cause the Proxy Statement to be mailed to the Company's stockholders at the
earliest practicable date.
5.9 Notification of Certain Matters. The Company shall give prompt
notice to Mergerco, and Mergerco shall give prompt notice to the Company, of
(a) the occurrence or non-occurrence of any event the occurrence, or non-
occurrence of which is likely to cause any representation or warranty of that
party in this agreement to be untrue or inaccurate in any material respect at
or prior to the Effective Time and (b) any failure of that party to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this agreement; provided, however, that the delivery of
any notice pursuant to this section 5.9 shall not limit or otherwise affect the
remedies available under this agreement to any of the parties receiving such
notice.
5.10 Fees and Expenses
(a) Whether or not the Merger is consummated and except
as otherwise provided in this section 5.10, all costs and expenses incurred in
connection with this agreement and the transactions contemplated by this
agreement shall be paid by the party incurring the expense.
(b) The Company agrees to pay Mergerco a fee in
immediately available funds equal to $200,000 upon the termination of this
agreement by Mergerco pursuant to section 7.1(d) or by the Company pursuant to
section 7.1(e).
6. Conditions to Consummation of the Merger.
6.1 Conditions to Both Parties' Obligation to Consummate the Merger.
The obligation of each party to effect the Merger is subject to the
satisfaction or waiver, where permissible, prior to the proposed Effective
Time, of the following conditions:
(a) the agreement of merger in this agreement shall have
been approved and adopted by the affirmative vote of the stockholders of the
Company required by and in accordance with applicable law;
(b) no statute, rule, regulation, executive order, decree
or injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority against Mergerco or the Company and be in
effect that prohibits or restricts the consummation of the Merger or makes such
consummation illegal (each party agreeing to use all reasonable efforts to have
such prohibition lifted); and
(c) The opinion referred to in section 3.12 shall have
been confirmed in writing as of the Effective Time.
18
<PAGE> 75
6.2 Conditions to Mergerco's Obligation to Consummate the Merger.
The obligation of Mergerco to effect the Merger is subject to the satisfaction
or waiver, where permissible, prior to the proposed Effective Time, of the
following conditions:
(a) since the date of this agreement, there shall not
have occurred any adverse change in the business or financial condition of the
Company or its subsidiaries that has resulted in a Material Adverse Effect;
(b) the representations and warranties of the Company
shall be true and correct in all material respects as of the Closing as if made
again on and as of the Closing, and all the covenants in this agreement to be
complied with or performed by the Company at or before the Closing shall have
been complied with and performed, and Mergerco shall have received a
certificate of the Company dated as of the date of the Closing and signed by an
officer of the Company, certifying as to the fulfillment of the condition set
forth in this section 6.2(b); and
(c) the holders of no more than 5% of the Shares shall
have exercised rights to appraisal under the DGCL.
6.3 Condition to the Company's Obligation to Consummate the Merger.
The obligation of the Company to effect the Merger is subject to the
satisfaction or waiver, where permissible, prior to the proposed Effective
Time, of the following condition: The representations and warranties of
Mergerco shall be true and correct in all material respects as of the Closing
as if made again on and as of the Closing, and all the covenants in this
agreement to be complied with or performed by Mergerco shall have been complied
with and performed, and the Company shall have received a certificate of
Mergerco, dated as of the date of the Closing and signed by an officer of
Mergerco, certifying as to the fulfillment of the condition set forth in this
section 6.3.
7. Termination; Amendment; Waiver
7.1 Termination. This agreement may be terminated and the Merger
abandoned at any time, notwithstanding approval of the Merger by the
stockholders of the Company, but prior to the Effective Time:
(a) by written consent of the boards of directors of each
of the Company and Mergerco and the Special Committee of the Company's board of
directors;
(b) by Mergerco or the Company, if, without any material
breach by such terminating party of its obligations under this agreement, at
any time after March 31, 1997;
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<PAGE> 76
(c) by Mergerco or the Company, if any court of competent
jurisdiction shall have issued an order (other than a temporary restraining
order), decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the purchase of Shares pursuant to the Offer or the
Merger; provided, however, that the party seeking to terminate this agreement
shall have used its reasonable best efforts to remove or lift such order,
decree or ruling;
(d) by Mergerco, if the board of directors of the Company
shall withdraw, modify or change its recommendation or approval in respect of
this agreement or the Merger in a manner adverse to Mergerco or the board of
directors of the Company shall have approved or recommended any proposal other
than by Mergerco in respect of an Acquisition Proposal;
(e) assuming the Company shall not have contravened
section 5.2, by the Company, to allow the Company to enter into an agreement in
respect of an Acquisition Proposal;
(f) by the Company, if any event or circumstance occurs
that renders the conditions set forth in section 6.3 not able to be satisfied,
or by Mergerco, if any event or circumstance occurs that renders the conditions
set forth in section 6.2 not able to be satisfied; and
(g) by the Company or Mergerco; if the opinion from
Patricof to the effect that the Merger Consideration is fair to the Company's
stockholders from a financial point of view is withdrawn or modified.
7.2 Effect of Termination. If this agreement is terminated and the
Merger abandoned pursuant to section 7.1, this agreement, except for sections
5.3(b) and 5.9 and (to the extent applicable to the foregoing sections),
section 8, shall forthwith become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders.
Nothing in this section 7.2 shall relieve any party of liability for breach of
this agreement.
7.3 Amendment. To the extent permitted by applicable law, this
agreement may be amended by action by or on behalf of the boards of directors
of the Company and Mergerco, at any time before or after adoption of this
agreement by the stockholders of the Company, but, after any such stockholder
approval, no amendment shall be made that decreases the Merger Consideration or
adversely affects the rights of the Company's stockholders under this
agreement, except with the approval of the stockholders of the Company. This
agreement may not be amended, except by an instrument in writing signed on
behalf of all the parties.
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7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties, by action by or on behalf of the boards of directors of the Company
and Mergerco, may (a) extend the time for the performance of any of the
obligations or other acts of the other parties in this agreement, (b) waive any
inaccuracies in the representations and warranties by any other party or in any
document, certificate or writing delivered pursuant to this agreement by any
other party or (c) waive compliance with any of the agreements or conditions in
this agreement. Any agreement by any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of that party.
8. Miscellaneous
8.1 Representations and Warranties. The representations and
warranties in sections 3 and 4 shall not survive beyond the Effective Time.
8.2 Enforcement of the Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction to prevent breaches of this agreement and to enforce specifically
the terms and provisions of this agreement in any federal or state court
located in the state of Delaware (as to which the parties agree to submit to
jurisdiction for the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity.
8.3 Validity. The invalidity or unenforceability of any provision of
this agreement shall not affect the validity or enforceability of any other
provision of this agreement, which shall remain in full force and effect.
8.4 Notices. All notices, requests, claims, demands and other
communications under this agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
if to Mergerco:
100 Century Boulevard
West Palm Beach, Florida 33487
Telecopier: (561) 640-3160
Attention: H. Irwin Levy
with a copy to:
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<PAGE> 78
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Telecopier: (212) 969-2900
Attention: Klaus Eppler, Esq.
if to the Company:
c/o Bernard Green
583 North Lake Way
Palm Beach, Florida 33488
Telecopier: (407) 848-6793
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A.
1221 Brickell Avenue
Miami, Florida 33131
Telecopier: (305) 579-0717
Attention: Bruce E. Macdonough, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change).
8.5 Governing Law. This agreement shall be governed by and construed
in accordance with the law of the state of Delaware, regardless of the law that
might otherwise govern under principles of conflicts of laws applicable
thereto.
8.6 Headings. The headings in this agreement are for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this agreement.
8.7 Parties in Interest. This agreement shall be binding upon and
inure solely to the benefit of each party to this agreement, and nothing in
this agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature under or by reason of this agreement,
except for sections 5.5 and 5.6 (which are intended to be for the benefit of
the persons referred to in those sections, and may be enforced by such persons)
and the first sentence of section 2.4 (which is intended to be for the benefit
of holders of Options and may be enforced by such persons).
8.8 Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same agreement.
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<PAGE> 79
8.9 Press Releases. Mergerco and the Company shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
8.10 Entire Agreement. This agreement constitutes the entire
agreement among the parties with respect to its subject matter and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to that subject matter.
FLA ACQUISITION CORP.
By: /s/ H. Irwin Levy
-------------------------------
H. IRWIN LEVY
PRESIDENT
HILCOAST DEVELOPMENT CORP.
By: /s/ Jack Jaiven
-------------------------------
JACK JAIVEN
Executive Vice President,
Chief Financial Officer
and Treasurer
23
<PAGE> 80
Schedule 1.5
Directors and Officers
of the Surviving Corporation
Directors
H. Irwin Levy
Mark Levy
Lynn Peseckis
Maurice Halperin
Barry Halperin
Officers
H. Irwin Levy -- President
Mark Levy -- Secretary
Barry Halperin -- Senior Vice President
<PAGE> 81
Schedule 3.2(a)
None.
<PAGE> 82
Schedule 3.2(b)
None.
<PAGE> 83
Schedule 3.4
None.
<PAGE> 84
Schedule 3.6
None.
<PAGE> 85
Schedule 3.7
1992 Stock Option Plan
1995 Stock Option Plan
Employment Agreements between the Company and each of Michael S. Rubin, Jack
Jaiven, Michael A. Rich, James A. Geddes, Harold Cohen and Antoinette Gleeson
HDC Group Health Plan
HDC Flexible Benefit Plan
<PAGE> 86
Schedule 3.8
None.
<PAGE> 87
Schedule 3.9
None.
<PAGE> 88
Schedule 4.2
Stockholders of Mergerco
Name(s) Number of Shares
H. Irwin Levy 4,172
Maurice and Barry Halperin 2,924
<PAGE> 89
EXHIBIT B
PATRICOF & CO
November 12, 1996
Independent Directors Committee
Hilcoast Development Corp.
c/o Bernard Green, Chairman
19146 Lyons Road
Boca Raton, FL 33434
Patricof & Co.
Capital Corp.
445 Park Avenue
New York, NY 10022
Tel 212-935-5151
Fax 212-832-6946
Gentlemen:
In September 1996, Patricof & Co. Capital Corp. ("Patricof") was engaged by
your committee to determine the fairness from a financial point of view of a
transaction (the "Proposed Transaction") to the "Public Shareholders" (all of
the shareholders other than Mr. H. Irwin Levy or persons or affiliates of such
persons joining with Mr. Levy) of Hilcoast Development Corp. ("Hilcoast" or
"the Company"). The Proposed Transaction contemplates a merger of Hilcoast and
a newly formed corporation in which each of Hilcoast's outstanding shares of
common stock would be converted into $6.00 in cash. As part of its engagement,
Patricof undertook to provide such additional assistance to your committee as
the committee might reasonably request including advice respecting alternatives
available to the Company other than the Proposed Transaction.
I. Procedures Followed
In connection with our analysis and as a basis for forming our opinion, we have
reviewed and analyzed such information as we considered relevant. No
limitations were placed upon the scope of our inquiry which included but was
not limited to the following:
<PAGE> 90
PATRICOF & CO
Independent Directors Committee
Hilcoast Development Corporation
c/o Bernard Green, Chairman
November 12, 1996
Page 2
A. Documents Consulted and Data Reviewed
1. Filings made or to be made with the Securities and Exchange
Commission, including Hilcoast's Annual Report on Form 10-K for the
fiscal years 1993-1996, the Company's fiscal year 1995 Annual Meeting
Proxy Statement, its 1992 Spin-off Prospectus, and a draft Merger
Agreement, and draft Proxy Statement both prepared for the purpose of
completing the Proposed Transaction.
2. Securities and Exchange Commission filings of companies used for
comparative purposes.
3. A variety of agreements to which Hilcoast and its affiliates are
parties, including the Company's 1992 and 1995 stock option plans, its
Restated Loan Agreement dated July 31, 1992, its $3.0 million Promissory
Note dated September 30, 1993; its $2.5 million Future Advance Promissory
Note dated September 15, 1994 and extension letters thereto; its $4.0
million Promissory Note dated August 11, 1995 and extension letters
thereto; its $2.1 million Promissory Note dated August 18, 1992 and
related documents; its $750,000 Note to H. Irwin Levy dated September 15,
1994 and extension letters thereto; and officers severance agreements
dated September 18, 1992.
4. Other Company related documents including historic, current and
projected financial statements, the Century Village Offering Circular for
Plymouth Condominium III, Hilcoast's board of directors minutes,
September 26, 1994 to August 9, 1996, and a Lawyers Representation Letter
from Cobb, Cole & Bell.
5. Data on stock market, industry and region specific economic factors
relevant to Patricof's engagement hereunder.
B. Facilities Visited
We visited Hilcoast's headquarters in Pembroke Pines, Florida and
inspected a variety of condominium units and facilities there, and visited its
Glen Abbey project in Volusia County, Florida.
C. Persons Contacted
1. Hilcoast Personnel: We interviewed the Company's Chairman/chief
executive officer, its President/chief operating officer; its Executive
Vice President/Treasurer/chief
<PAGE> 91
PATRICOF & CO
Independent Directors Committee
Hilcoast Development Corporation
c/o Bernard Green, Chairman
November 12, 1996
Page 3
financial officer, its Vice President/marketing, Vice
President/construction, and the Manager of the Glen Abbey project.
2. Non-Hilcoast Personnel: We spent time with the Company's independent
director, and members of the law firm involved in preparing the
documentation for the Proposed Transaction.
3. Other Persons: We had telephone conversations with executives of
certain of the companies that were included in our market check.
II. Factors Considered and Alternative Approaches
A. In arriving at our conclusion we considered, among other elements,
the Company's history, its current and prospective business operations,
litigation affecting the Company, its historic, current and projected financial
condition, public trading in its common stock and stock market, industry and
region specific factors. We made numerous financial and operating comparisons
between Hilcoast, and a group of public companies that could be used for
comparative purposes, determined the investor appraisal ratios accorded the
common stocks of those comparative companies, considered publicly available
comparative transactions and performed discounted cash flow analyses based upon
alternative sets of assumptions.
B. In arriving at our conclusion, we utilized a variety of analytical
approaches, including comparative company analysis, comparative transaction
analysis and discounted cash flow analysis.
III. Market Check
We solicited a variety of residential home builders with operations in
Florida for the purpose of eliciting proposals alternative to the Proposed
Transaction.
IV. Assumptions and Limitations
A. We have relied on, and assumed without independent verification, the
accuracy and completeness of the financial and other information contained in
publicly available sources or provided to us orally or in writing by the
Company, its officers, directors, employees, agents, counsel, and others.
<PAGE> 92
PATRICOF & CO
Independent Directors Committee
Hilcoast Development Corporation
c/o Bernard Green, Chairman
November 12, 1996
Page 4
B. We have assumed that the information supplied to us by the persons
described in paragraph A hereof represented good faith efforts to describe the
operations and financial condition of Hilcoast and its affiliates.
C. We have not undertaken any independent appraisal of the assets or
liabilities of the Company or its affiliates, nor, other than stated herein,
reviewed such companies' books, or made inquiries of its suppliers,
competitors, creditors, or of the residents at Century Village-Pembroke Pines.
D. We express no opinion as to any tax consequences of the Proposed
Transaction.
E. We have assumed that the final documents in the Proposed Transaction
will contain data substantially similar to that previously supplied to us.
F. This letter is furnished to you solely in connection with the
engagement described in the engagement letter, and its use is limited to the
purposes set forth in paragraph 4 of that letter.
V. Conclusion
Based upon the foregoing, and subject to the assumptions and limitations set
forth in Section IV hereof, and effective only as of the date of this letter,
we are of the opinion that the terms to be offered in the Proposed Transaction
are fair to the Company's Public Shareholders from a financial point of view.
Very truly yours,
PATRICOF & CO. CAPITAL CORP.
<PAGE> 93
EXHIBIT C
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251, 252, 254, 257, 258, 263
or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to vote
at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. Or (ii) held of
record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the holders of the surviving corporation as provided in subsections
(f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to Section Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. Or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
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(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal rights
are available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder electing
to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or 253 of this title, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that appraisal
rights are available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this section. The
notice shall be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from the surviving
or resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the
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<PAGE> 95
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court,
shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and
to the stockholders shown on the list at the addresses therein stated. Such
notice shall also be given by 1 or more publications at least 1 week before the
day of the hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the far rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any
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<PAGE> 96
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4
<PAGE> 97
EXHIBIT D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT # 1
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 0-20530
HILCOAST DEVELOPMENT CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0346040
------------- ------------
(State of (I.R.S. Employer
Incorporation) Identification No.)
19146 Lyons Road, Boca Raton, Florida 33434
- ---------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 407-487-9630
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NONAFFILIATES OF THE REGISTRANT
Common Stock, par value $.01 per share ("Common Stock"), was the only class of
voting stock of the Registrant outstanding on July 31, 1996. Based on the last
sale price of the Common Stock on the NASDAQ Small-Cap Market on August 28,
1996 ($5.31), the aggregate market value of the 768,450 shares of the Common
Stock held by persons other than officers, directors and persons known to the
Registrant to be the beneficial owner (as that term is defined under the rules
of the Securities and Exchange Commission) of more than five percent of the
Common Stock on that date was approximately $4.1 million. By the foregoing
statements, the Registrant does not intend to imply that any of these officers,
directors or beneficial owners are affiliates of the Registrant or that the
aggregate market value, as computed pursuant to rules of the Securities and
Exchange Commission, is in any way indicative of the amount which could be
obtained for such shares of Common Stock.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 14(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
2,362,320 shares of Common Stock, par value $.01
per share, were outstanding as of August 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement of Hilcoast Development Corp.
for the 1996 Annual Meeting of Stockholders
(incorporated in Part III)
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<PAGE> 99
PART I
ITEM 1. BUSINESS
GENERAL
Hilcoast Development Corp. (the "Company" or "Registrant") was incorporated in
Delaware on July 6, 1992 for the purpose of acquiring certain real property
located at the Century Village adult condominium project in Pembroke Pines,
Florida ("Century Village"), including the recreation facilities located at
that project ("Recreation Facilities"), and certain other assets. The
acquisition was completed on July 31, 1992 (see Business - Certain Transactions
and Relationships - Acquisitions) whereupon the Company commenced its business
activities. For information with respect to the Company's results of
operations and financial condition for fiscal years ended July 31, 1996, 1995
and 1994, see Selected Financial Data and the Company's Consolidated Financial
Statements.
The Company is primarily engaged in the design, development, construction,
marketing and sale of condominium apartments at Century Village and the
operation of the Recreation Facilities. In addition, the Company is engaged in
the development of single-family homesites in a golf course community in
Volusia County, Florida, known as Glen Abbey ("Glen Abbey"), and the sale of
those homesites to local builders and retail customers. The Company also
derives revenues from a variety of real estate related activities, including
certain maintenance and community services at Century Village, real estate
brokerage, title insurance agency services, and investment advisory and
consulting services.
The Company is involved in all phases of planning and building Century Village,
including site planning and preparation, application for and receipt of
regulatory approval, design, construction, marketing and sales, in addition to
constructing recreation facilities and other amenities. The Company is also
involved in all phases of the development of Glen Abbey, including site planning
and preparation, application for and receipt of regulatory approvals, and sales
and marketing to builders and other potential purchasers.
The Company currently maintains its executive offices at 19146 Lyons Road, Boca
Raton, Florida 33434 and its telephone number is (407) 487-9630.
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RECENT DEVELOPMENT - PROPOSED MERGER
On August 12, 1996, the Company's Board of Directors received an unsolicited
proposal from H. Irwin Levy, the Company's Chairman of the Board and Chief
Executive Officer, contemplating a merger of the Company and a newly formed
acquisition company to be organized by Mr. Levy, pursuant to which each of the
Company's outstanding shares of Common Stock would be converted into $6.00
cash. A special independent committee of the Board has been appointed to
consider the proposal and in connection therewith, has engaged financial and
legal advisors.
The proposed merger is subject to approval of the Company's Board of Directors
and shareholders and a number of other material conditions, including
negotiation of a definitive agreement and compliance with all applicable
regulatory and governmental requirements. Accordingly, there can be no
assurance that the proposed merger will be consummated.
OPERATING POLICIES
The Company attempts to reduce certain of the risks inherent in real estate
development and to maximize its financial resources by: (i) utilizing
subcontractors in many of the construction and site improvement activities; (ii)
obtaining favorable contract prices from subcontractors based on the volume of
the Company's construction activity; and (iii) creating additional sources of
revenues through development related activities including long-term recreation
leases, real estate brokerage and title insurance agency services.
FLORIDA MARKET
Century Village is located in the southwestern portion of Broward County, which
the Company believes is one of the fastest growing areas in Florida. The
Company believes that certain fundamental aspects of the southeast Florida
area, including an attractive climate and quality of life, have contributed and
will continue to stimulate population and economic growth.
RESIDENTIAL DEVELOPMENT
CENTURY VILLAGE
Century Village is a planned 7,780 unit active adult condominium community
located on approximately 680 acres of land in Pembroke
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Pines, Florida. The Company is constructing four story condominium buildings
containing one and two-bedroom apartments currently ranging in price from
$58,000 to $129,000. Century Village is located west of Hollywood, approximately
one-half mile from Interstate 75, midway between Miami and Fort Lauderdale. The
community features more than 200 acres devoted exclusively to recreation, social
and entertainment facilities, including a 135,000 square foot clubhouse which
contains a 1,042 seat auditorium/theatre, a 962 person capacity party room, card
rooms, pool and billiards rooms, exercise and sauna facilities, indoor and
outdoor swimming pools and other hobby and athletic areas. A recently completed
12,000 square foot health club facility, known as Club Health, contains a
wave-walking exercise pool and the latest fitness equipment. The community also
features an 18 hole, semi private, par 71 golf course, tennis facilities and
additional pools and poolhouse facilities dispersed throughout the community.
The Company provides recreation activities and amenities, security services,
transportation within the community and to surrounding businesses and shopping
areas, as well as maintenance, community management and other services under
separate agreements providing for monthly per unit charges. In addition, each
apartment contains a built-in, medical-security alert communications system
which provides residents with continuous access to security and emergency
medical services.
As of July 31, 1996, 6,911 condominium apartments, or 89% of the total planned
community, had been delivered (closed under sales contracts) to purchasers
since September 1984, including 409 and 479 delivered by the Company in fiscal
1996 and 1995, respectively. At July 31, 1996 and 1995, there were 227 and 219
condominium apartments, respectively, in the Company's backlog of units sold but
not yet delivered. See Management's Discussion and Analysis of Financial
Condition and Results of Operations for a more detailed discussion of the
Company's backlog and condominium inventories.
GLEN ABBEY
Glen Abbey and an adjacent parcel consists of approximately 135 acres of
unimproved land in Volusia County, Florida, planned for approximately 250
improved single family homesites which the Company is developing in stages.
Through July 31, 1996, the Company had completed development of the first two
phases, consisting of 59 lots, of which 57 had been delivered to purchasers,
including 10 and 22 delivered during fiscal 1996 and 1995, respectively. The
Company is currently developing the third phase, which is planned for 33 lots.
At July 31, 1996, there were four lots in backlog or under reservation. See
Business - Certain Transactions and Relationships - CV Reit.
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<PAGE> 102
RECREATION FACILITIES
The Company owns all of the Recreation Facilities at Century Village (See
Business - Residential Development - Century Village). Each purchaser of a
condominium apartment has the option to enter into a 50 year lease for such
facilities, which provides for monthly payments, currently ranging from $63 to
$82, and for specified increases after three years based on increases in
operating costs and fixed contractual increases after five years. As of July
31, 1996, virtually all of the purchasers of the 6,911 condominium apartments
delivered had exercised that option.
CONSTRUCTION
The Company acts as the general contractor for the construction of the
condominium apartments it sells. Company employees monitor construction,
participate in all material design and building decisions and coordinate
construction with local and state regulatory authorities. Subcontractors are
retained for specified projects pursuant to contracts which obligate the
subcontractor to complete construction for a fixed price. The Company does not
have any long-term contractual commitments with any of its subcontractors.
The Company manufactures and erects pre-cast and pre-stressed concrete walls,
floors and other building components for the condominium buildings at Century
Village. Management believes that this strategy allows the Company's
construction operations to achieve efficiencies in time, cost and inventory
management.
The Company does not maintain significant inventories of construction materials
except for work-in-process materials for property under construction and a
limited amount of other construction materials. Generally, the construction
materials used in the Company's operations are readily available from numerous
sources. The Company cannot predict, however, if shortages of necessary
materials or labor will occur in the future.
The Company finances its construction operations with cash flow from
operations, principally sales of condominium apartments, and with borrowings
principally under lines of credit with CV Reit. See Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources and Note 4 to Consolidated Financial Statements.
MARKETING AND SALES
The Company conducts a comprehensive multimedia marketing program,
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including regional radio, television and print advertising, highway signs,
illustrated brochures, out-of-town seminars followed by Company-sponsored
on-site tours, on-and off-site displays, direct mail advertising and special
promotional events. Purchasers of Century Village condominium apartments are
generally retirees primarily from the southeast Florida area as well as the
major northeast metropolitan areas, such as the New York City and New Jersey
area. During fiscal 1996, new sales at Century Village were identical to fiscal
1995, with 417 new sales contracts during each year.
The Company believes that one of the principal factors in the success of
Century Village has been its ability to establish and market the lifestyle
available within its communities as a "way of life". The Company engages Red
Buttons at Century Village to provide name recognition and an identity symbolic
of its central theme, and to emphasize the range and quality of the Recreation
Facilities and the diversity of available activities.
Condominium apartments at Century Village are sold on a commission basis by the
Company's sales personnel. The Company maintains on-site sales offices and
furnished model apartments at Century Village. Condominium apartments are sold
pursuant to contracts which require the purchaser to make a cash down payment
that may be forfeited if the purchase is not completed unless in accordance with
Florida law, the purchaser elects to rescind the contract for any reason within
15 days following the execution of the sales contract. The sales contracts also
contain mortgage contingencies which allow the purchaser to cancel the contract
without penalty if the purchaser is unable to obtain financing. The State of
Florida requires purchasers' deposits to be held in segregated escrow accounts
unless such deposits are guaranteed by bank letters of credit (see Note 4 to
Consolidated Financial Statements).
The Company assists purchasers in obtaining mortgage financing from financial
institutions; however, the Company does not offer seller financing. Historically
and during fiscal 1996, a majority of purchasers acquired Century Village
apartments for cash.
Company personnel handle sales of homesites at Glen Abbey primarily to builders
and retail customers.
OTHER ACTIVITIES
The Company operates four offices which provide real estate brokerage services,
consisting of resales and rentals at the four Century Villages in southeast
Florida. The Company also operates a title insurance agency which provides
title insurance services principally to purchasers at Century Village. The
Company acts as the investment advisor to CV Reit on a fee basis (see Business
- - Certain Transactions and Relationships - Consulting and Advisory
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<PAGE> 104
Agreement with CV Reit).
GOVERNMENT REGULATION
Real estate development, particularly condominium development, is subject to
increasing environmental, building, zoning, real estate sales and securities
regulation by various federal, state and local authorities. New projects
require the approval of numerous governmental authorities regulating such
matters as permitted land uses and levels of density, the installation of
utility services such as water and wastewater disposal, and the dedication of
acreage for open space, parks, schools and other community purposes. Several
authorities in Florida have imposed impact fees as a means of defraying the
cost of providing certain governmental services to developing areas, and the
amount of these fees has increased significantly during recent years. In
addition, certain governmental agencies have attempted to impose restrictive
zoning and density requirements in order to limit the number of persons who
live and work within their boundaries. Finally, the State of Florida has at
times declared moratoriums on issuance of building permits and imposed other
restrictions in areas where sewage treatment facilities and other public
facilities do not reach minimum standards. The Company has no reason to believe
that any of the foregoing will occur at Century Village or would have a material
adverse effect on operations at that project.
In connection with the development of Century Village and Glen Abbey, the
Company is required to obtain the approval of various governmental authorities,
many of which it has already obtained. Drainage, water and sewer permits must
be obtained prior to commencement of certain land development activity.
Building permits and certificates of occupancy must be obtained in connection
with the construction and delivery of condominium apartments at Century
Village. The Company believes that to the extent that appropriate governmental
approvals have not previously been obtained for the completion of Century
Village and Glen Abbey, it will be able to obtain such approvals in the future.
If such approvals cannot be obtained, the Company's business may be adversely
affected. In addition, during 1995, certain governmental authorities imposed
significant additional construction requirements regarding hurricane protection
and other items. These requirements will increase the Company's construction
costs in fiscal 1997 and 1998.
In recent years, regulation by federal and state authorities relating to the
sale and advertising of condominium interests and residential real estate has
become more restrictive. In order to advertise and sell condominiums and
residential real estate in many jurisdictions, the Company is required to
prepare registration statements or other disclosure documents and, in some
cases, to file such materials with designated regulatory agencies.
8
<PAGE> 105
The Company is required to comply with the Americans with Disabilities Act,
which requires residential buildings to have certain additional facilities
available for handicapped persons. The Company anticipates that compliance
with the Act will not have a material adverse effect on its construction costs
in the future.
COMPETITION AND OTHER FACTORS
The development and sale of residential properties is highly competitive. The
Company competes on the basis of a number of interrelated factors, including
location, reputation, amenities, design, quality and price, with numerous
larger and smaller builders, including some builders with nationwide operations
and greater experience and financial resources. The Company also competes for
residential sales with individual resales of existing homes and homesites,
including condominium apartments in the three previously completed Century
Village communities in southeast Florida as well as those in Century Village at
Pembroke Pines. The Company may also compete with sales by financial
institutions of properties obtained in foreclosure proceedings.
The Company believes that its principal competition for its Century Village
project is other condominium developments in the low to medium price range with
substantial recreation facilities in Dade, Broward and Palm Beach counties.
The Company believes that the establishment of a "way of life" community
concept has been a significant factor in making Century Village competitive in
the market place.
Historically, the housing industry has been cyclical and is affected by
prevailing economic conditions, in general, and by interest rates, in
particular. A variety of other factors affect the housing industry and demand
for new homes, including the availability of labor and materials and increases
in the costs thereof, changes in costs associated with home ownership such as
increases in property taxes and energy costs, changes in consumer preferences,
demographic trends and the availability of and changes in federally-sponsored
mortgage financing programs.
WARRANTIES, BONDS AND OTHER OBLIGATIONS
In the ordinary course of its business, the Company may incur or undertake
certain contingent or future liabilities, including obligations: (a) under
performance and maintenance bonds (or letters of credit, in lieu thereof), (b)
to complete recreation or other community facilities, (c) to subsidize
condominium associations, and (d) under homeowner warranties. The amount of
such obligations outstanding at any time varies in accordance with the Company's
pending construction activities. At July 31, 1996,
9
<PAGE> 106
there was aproximately $289,000 outstanding in letters of credit issued by CV
Reit to municipalities principally in connection with performance and
maintenance bond obligations at Century Village.
The Company is required by law to grant limited warranties covering workmanship
and materials with respect to condominium apartments. The Company employs
subcontractors who perform a significant portion of the actual construction
process and who, in turn, provide warranties of workmanship to the Company.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
CAPITALIZATION AND SPIN-OFF
The Company was capitalized in July 1992 by issuing: (a) 5,000 shares of 10%
Cumulative Preferred Stock to CV Reit for $5 million; and (b) 1.8 million shares
of non-voting Class A Common Stock representing 75% of its outstanding common
stock to CV Reit for $1.8 million in cash and 600,000 shares of voting Common
Stock representing 25% of its outstanding common stock to H. Irwin Levy for
$738,000 in cash. Mr. Levy is Chairman of the Board and Chief Executive Officer
of the Company. In addition, he is a principal stockholder and, until his
resignation on July 31, 1992, was Chairman of the Board of CV Reit.
On October 23, 1992, CV Reit distributed the shares of the Class A Common Stock
to its stockholders in the form of a taxable dividend (the "Spin-off"), at
which time the Class A Common Stock was automatically converted into voting
Common Stock. As a result of the Spin-off, the Company became independent of
CV Reit and its Common Stock is currently listed for trading on the NASDAQ
Small-Cap Market. On March 31, 1995, the Company redeemed the Preferred Stock
in exchange for a $5 million note payable July 31, 1998.
ACQUISITIONS
On July 31, 1992, the Company acquired certain assets from affiliates of
Cenvill Development Corp. ("Development") for a purchase price of approximately
$63.3 million, subject to $56.2 million of mortgage indebtedness (including
$48.2 million to CV Reit - see Note 4 to Consolidated Financial Statements) and
$4.3 million of accounts payable, customer deposits and other liabilities, and
issued a $2.8 million promissory note to Development, guaranteed by CV Reit
(which note was repaid in 1994). The acquisition occurred pursuant to approval
by the Bankruptcy Court of the Southern District of Florida of a Proposal for
the Acquisition of Certain Assets, dated June 19, 1992, between Development and
CV Reit, in connection with Chapter 11 proceedings filed by Development on that
date. The assets acquired principally consisted of real property located in
Century Village, including land for the then remaining approximately 2,200
condominium apartments, construction in progress and the Recreation Facilities.
10
<PAGE> 107
Effective August 18, 1992, the Company purchased unimproved land in Glen Abbey,
an existing golf course community in Volusia County, Florida, from CV Reit for
approximately $2.5 million. The Company paid approximately $400,000 in cash,
and $2.1 million in the form of a mortgage note (see Note 4 to Consolidated
Financial Statements). The purchase price for the Glen Abbey land represented
CV Reit's book value on the date of sale.
CONSULTING AND ADVISORY AGREEMENT WITH CV REIT
On July 31, 1992, the Company entered into a consulting and advisory agreement
under which the Company provides certain investment advisory, consulting and
administrative services to CV Reit including: investigating and evaluating
investment opportunities; conducting negotiations with existing and potential
borrowers and lenders; negotiating with investment bankers in connection with
the sale of securities of CV Reit; administering compliance by CV Reit with the
provisions of its loan agreements; consulting with respect to the preparation
of required reports to the New York Stock Exchange and the Securities and
Exchange Commission; supervising the prosecution of claims by CV Reit against
third parties and supervising the defense of claims made against CV Reit; and
attending CV Reit's board meetings. The agreement specifically excludes
matters related to the Company's loans from CV Reit. The agreement, which
originally expired on July 31, 1994, was recently extended to July 31, 1997,
provides for the payment of $10,000 per month to the Company, plus
reimbursement for all out of pocket expenses, and may be terminated by the
Company upon 180 days notice and by CV Reit upon 30 days notice. Certain
officers of the Company, including Mr. Levy, perform services for CV Reit under
the agreement. To the extent that such services interfere with their duties to
the Company, the Company will provide alternative personnel to fulfill its
contractual obligations to CV Reit.
OTHER TRANSACTIONS WITH CV REIT
In March 1995, CV Reit acquired from a financial institution a note due from
the Company with a then outstanding balance of $2.7 million, collateralized by
a mortgage on the Recreation Facilities. The Company repaid that note during
fiscal 1996.
The Company leases approximately 1,300 square feet of office space in West Palm
Beach from CV Reit for a monthly rental of approximately $1,100.
The Company intends to resolve any conflicts which may arise between the
Company and CV Reit by referring such conflicts to an independent committee of
its Board of Directors. Since Mr. Levy is
11
<PAGE> 108
both a director of the Company and a principal stockholder of CV Reit, Mr. Levy
would not serve on any such committee.
Certain officers and/or directors of the Company were previously officers
and/or directors of CV Reit.
CENVILL RECREATION
Cenvill Recreation consists of a group of companies owned, in various
percentages, by Mr. Levy and his family. During fiscal 1996, Cenvill Recreation
occupied approximately 1,600 square feet of office space at the Company's
Administration Building at the Century Village at Boca Raton and paid the
Company approximately $500 per month on a month-to-month basis.
H. IRWIN LEVY
In September 1994, the Company and Mr. Levy entered into an unsecured
revolving credit agreement allowing the Company to borrow up to $750,000 from
Mr. Levy through May 1, 1997, as extended (see Note 4 to Consolidated Financial
Statements). For a one week period in July 1995, the outstanding balance under
this agreement was increased to $1,030,000, which amount was reduced to
$390,000 by July 31, 1995 and repaid in September 1995. Since that repayment,
the Company has not made any further borrowings under this agreement.
EMPLOYEES
At July 31, 1996, the Company employed 221 persons including 99 in construction
related activities (54 covered by a collective bargaining agreement), 58 in
recreation and maintenance activities, and 64 in sales, administration and
other activities. The Company believes that its relations with its employees
and subcontractors are satisfactory.
ITEM 2. PROPERTIES
In addition to the Company's residential development property described in Item
1, at July 31, 1996, the Company's properties included: (i) several buildings
within Century Village, aggregating approximately 37,000 square feet, used for
commercial purposes, including administration, sales, models and health care
services; and (ii) the approximately 23,000 square foot Administration
Building at the Century Village in Boca Raton, of which the Company occupies
approximately 2,000 square feet as executive and administrative offices. The
aggregate book value of the foregoing properties was approximately $1 million
at July 31, 1996.
12
<PAGE> 109
During fiscal 1995, the Company sold approximately 29 acres of unimproved land
in Coconut Creek, Florida for $1,975,000, an amount which approximated book
value.
See Note 4 to Consolidated Financial Statements for a description of the
mortgages to which the Company's properties are subject.
ITEM 3. LEGAL PROCEEDINGS
On September 16, 1993, the Company filed a Complaint in the Circuit Court,
Seventh Judicial Circuit, in and for Volusia County, Florida, seeking
unspecified damages against a utility company, claiming inverse condemnation
and trespass at the Company's Glen Abbey project. On March 18, 1994, the Court
granted a Motion for Summary Judgment holding the defendant liable for trespass
and inverse condemnation. On April 5, 1995, the Court vacated the Summary
Judgment and in February 1996, the Court ruled that the Company is not entitled
to recovery under the theory of inverse condemnation. The trespass claims,
which include a claim for damages caused by flooding, have not been tried and
no trial date has been set. The Company has appealed the Court's decision. If
the Appellate Court reverses the order, the inverse condemnation damages claim
would be remanded to the Circuit Court. The Company also expects to pursue its
trespass claims.
The Company is unable to predict the outcome of an appeal or the amount of
damages, if any, which may be awarded to the Company on either the trespass or
inverse condemnation claims. In addition, any award of damages to the Company
will be subject to appeal by the defendant and, accordingly, there can be no
assurance that the Company will ultimately recover any damages.
The Company is not presently a party to any other material pending litigation.
However, the Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's 1996 fiscal year.
13
<PAGE> 110
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") Small-Cap Market under the
symbol HCDV. The following tables set forth the market price range of the
Common Stock for each quarter during the years ended July 31, 1996 and 1995,
based on the high and low closing bid prices as reported on the NASDAQ
Small-Cap Market. Such high and low bid prices reflect interdealer prices
without retail markup, markdown or commission and may not necessarily represent
actual transactions. No cash dividends were declared by the Company on the
Common Stock during those periods.
<TABLE>
<CAPTION>
Market
Price Range
-----------------
High Low
1996 ----- -----
----
<S> <C> <C>
First Quarter 4-7/8 4-1/8
Second Quarter 4-3/4 4-1/4
Third Quarter 4-3/4 4-1/4
Fourth Quarter 5 4-1/4
1995
----
First Quarter 4-7/8 4-1/2
Second Quarter 4-7/8 4-1/2
Third Quarter 4-7/8 4-1/2
Fourth Quarter 4-7/8 4-3/8
</TABLE>
As of July 31, 1996, the Company had 2,362,320 shares of Common Stock
outstanding and 365 holders of record of such stock.
The Company does not anticipate paying cash dividends on the Common Stock in
the foreseeable future based on its expected operating cash flow requirements
(see Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources). The Delaware General Corporation
Law
14
<PAGE> 111
prohibits the Company from paying dividends or otherwise distributing funds to
its stockholders, except out of legally available funds. The declaration and
payment of dividends on the Company's Common Stock and the amount thereof will
be dependent upon the Company's results of operations, financial condition,
cash requirements, future prospects and other factors deemed relevant by the
Board of Directors. No assurance can be given that the Company will pay any
dividends on the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
The Company's operations commenced in connection with the purchase of certain
assets on July 31, 1992. Allocations have been made to reflect the fair value
of the assets acquired resulting in asset bases which differ from those of the
previous owner. In addition, certain of the Company's operating policies and
accounting procedures may be different from those of the previous owner.
Accordingly, comparative financial data for the year ended July 31, 1992 is not
presented since it would be neither comparable nor informative. The following
should be read in conjunction with the Company's Consolidated Financial
Statements, accompanying notes and other financial information included herein:
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Statement Data:
Sales of condominium apartments $ 30,917 $ 37,340 $ 35,992 $ 24,809
========== ========== ========== ==========
Total revenues $ 43,030 $ 51,313 $ 47,236 $ 35,317
========== ========== ========== ==========
Income (loss) before
income tax expense (benefit) $ (675) $ 983 $ 512 $ 343
Income tax expense (benefit) (237) 378 223 134
---------- ---------- ---------- ----------
Net income (loss) (438) 605 289 209
Preferred stock dividends - 333 500 502
---------- ---------- ---------- ----------
Net income (loss) applicable
to common stock $ (438) $ 272 $ (211) $ (293)
========== ========== ========== ==========
Net income (loss) per common share $ (.19) $ .11 $ (.09) $ (.12)
========== ========== ========== ==========
Average common shares
considered outstanding 2,362,320 2,506,562 2,352,320 2,363,286
========== ========== ========== ==========
</TABLE>
15
<PAGE> 112
<TABLE>
<CAPTION>
July 31,
-------------------------------------
1996 1995 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Inventories and
properties held for
development and sale $30,234 $35,383 $40,227 $40,088
======== ======= ======= =======
Total assets $53,595 $58,137 $64,743 $66,402
======= ======= ======= =======
Borrowings $45,348 $48,611 $49,637 $53,229
======= ======= ======= =======
Stockholders' equity $ 1,835 $ 2,273(a) $ 6,986 $ 7,197
======= ======= ======= =======
</TABLE>
- ---------------
(a) On March 31, 1995, the Company redeemed its $5 million of 10% Cumulative
Preferred Stock in exchange for a $5 million note payable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
During the year ended July 31, 1996, the Company reported a net loss
attributable to common stock of $438,000 on total revenues of $43 million, as
compared to net income attributable to common stock of $272,000 on revenues of
$51.3 million in the year ended July 31, 1995.
The Company's primary sources of revenues are the design, development,
construction, marketing and sale of condominium apartments at the Century
Village at Pembroke Pines adult condominium community ("Century Village") and
the operation of the recreation facilities (the "Recreation Facilities")
located at that project. For the year ended July 31, 1996, revenues from sales
of condominium apartments at Century Village represented approximately 72% of
total revenues while producing an average gross margin (sales revenues less cost
of sales, as a percentage of sales
16
<PAGE> 113
revenues) of 14% as compared to 73% of total revenues at an average gross margin
of 18% for the corresponding period ended July 31, 1995. The following table
presents pertinent information related to deliveries of condominium apartments
at Century Village.
<TABLE>
<CAPTION>
Deliveries - Year Ended July 31,
----------------------------------------------------
1996 1995
--------------------------------- ----------------------------------
Number Average Number Average
of Units Revenues Sales Gross of Units Revenues Sales Gross
Delivered (000's) Price Margin Delivered (000's) Price Margin
--------- -------- ------- ------ --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
409 $30,917 $75,600 14% 479 $37,340 $78,000 18%
</TABLE>
Revenues from sales of condominium apartments are recognized only upon the
closing (delivery) of the sales contract. Fluctuations in average sales prices
at Century Village are generally a function of the location of condominium
buildings (e.g. lakefront) and to a lesser extent, the mix of condominium
apartments within the building. The 4% decrease in gross margin principally
reflects the $2,400 decrease in the average sales price of units delivered in
1996, primarily attributable to the commencement of deliveries in November 1995
in a section where there are no lakefront buildings. Gross margins also
declined due to higher per unit cost of sales on all units delivered in fiscal
1996, primarily attributable to an overall rise in construction costs (spurred
by normal cost increases and by additional requirements imposed by governmental
agencies) and site improvement costs, which were partially offset by lower per
unit land costs associated with units delivered in the aforementioned section.
A comparison of the Company's inventories and backlog (under contract for sale
but not yet delivered) at Century Village follows:
<TABLE>
<CAPTION>
July 31, 1996 July 31, 1995
--------------------- ---------------------
Number of Number of
Condominium Condominium
Apartments Apartments
--------------------- ---------------------
Completed Completed
or Under or Under
Construction Backlog Construction Backlog
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Completed but not
yet delivered 53 30 50 29
Under construction 708 197 620 190
--- --- --- ---
761 227 670 219
=== === === ===
Aggregate sales
value (000's) $18,256 $16,694
Average sales price $80,400 $76,200
</TABLE>
17
<PAGE> 114
Based upon the 227 sales contracts in backlog for Century Village at July 31,
1996, a significant portion of which are expected to be delivered within the
next nine months, the Company anticipates an increase in average sales prices
for fiscal 1997 deliveries. The Company also anticipates an increase in the
average per unit cost of sales, although to a lesser extent, primarily
attributable to higher construction costs. As a result, the gross margin for
fiscal 1997 is expected to increase accordingly.
For each of the years ended July 31, 1996 and 1995, the Company entered into
417 new sales contracts (net of cancellations) at Century Village with an
aggregate sales value of $32.1 million and $32.2 million, respectively, and an
average sales price of $76,900 and $77,200, respectively.
For the years ended July 31, 1996 and 1995, recreation and maintenance fees
were $8.3 million and $7.5 million, respectively, consisting of $5.9 million
and $5.3 million, respectively, of revenues pursuant to long-term leases
("Recreation Leases") of the Recreation Facilities with unit owners occupying
approximately 6,900 Century Village condominium apartments delivered through
July 31, 1996 and $2.4 million and $2.2 million, respectively, of revenues from
master management agreements, under which the Company provides certain
maintenance and community services. These revenues will continue to increase
annually principally due to future deliveries of condominium apartments and
specified contractual increases in monthly fees in accordance with the
Recreation Leases. The Recreation Leases and the master management agreements
provide that increases and decreases in operating costs are passed through to
the unit owners, subject to a guaranteed rate generally for three years.
For both years ended July 31, 1996 and 1995, other revenues amounted to $3.5
million and principally consisted of revenues from the golf course operations
at Century Village, real estate brokerage commissions at the four Century
Village communities in southeast Florida, social program activities at the
Recreation Facilities and title insurance agency services provided on sales at
Century Village (see Note 6 to Consolidated Financial Statements). Other
revenues are not expected to fluctuate significantly during fiscal 1997.
Operating costs amounted to $7.6 million for the year ended July 31, 1996, as
compared to $7.3 million for the previous fiscal year, and consisted
principally of costs incurred for the operation of
18
<PAGE> 115
the Recreation Facilities, the master management agreements, four real estate
brokerage offices and the Company's title insurance agency. The $.3 million
increase in operating costs is primarily attributable to normal increases of
certain expenses associated with the Recreation Facilities and master management
operations. Operating cost increases related to these operations are generally
passed through to unit owners at Century Village in the form of increased
recreation and maintenance fees, subject to the aforementioned three year
guarantee.
Interest incurred for the year ended July 31, 1996 amounted to $5.3 million as
compared to $5.2 for the year ended July 31, 1995. Interest capitalized to
inventories at Century Village and Glen Abbey approximated $2.9 million in
1996, as compared to $3.4 in the previous fiscal year, resulting in net
interest expense of $2.4 million and $1.8 million, respectively. The decreased
capitalized interest principally resulted from lower average inventories on
which to capitalize interest. The Company expects interest incurred to decline
during fiscal 1997 due to anticipated reductions in its borrowings.
During each of the fiscal years ended July 31, 1996 and 1995, selling and
marketing costs expensed amounted to $3.8 million and $4.2 million,
respectively, primarily attributable to 70 less deliveries of condominium
apartments in fiscal 1996. Selling and marketing costs are capitalized and
amortized to expense as condominium apartments are delivered at Century
Village, based on the average capitalized cost per apartment sold. Selling and
marketing expenses are expected to fluctuate during fiscal 1997 based on
fluctuations in the number of units delivered.
General and administrative expenses for the years ended July 31, 1996 and 1995
were $1.7 million and $2.3 million, respectively. Generally these expenses
consist of corporate overhead and administration of Century Village. However,
during fiscal 1996 and 1995, general and administrative expenses included $.2
million and $.7 million, respectively, of non-recurring items consisting of:
(i) professional fees incurred during 1996 and 1995 in a lawsuit brought by the
Company against a utility company for damages and reimbursement of professional
fees at the Company's Glen Abbey project (see Item 3, Legal Proceedings); (ii)
costs incurred during 1995 to explore the potential acquisition of a tract of
land for a future project, which was determined not to be feasible; and, (iii)
costs related to a change in health insurance programs during 1995. Excluding
these non-recurring costs, general and administrative expenses for fiscal 1996
decreased by approximately $.1 million as compared to the preceding year,
primarily due to reductions in administrative salaries.
19
<PAGE> 116
1995 COMPARED TO 1994
During the year ended July 31, 1995, the Company reported net income of $605,000
on total revenues of $51.3 million, as compared to net income of $289,000 on
revenues of $47.2 million in the year ended July 31, 1994. After giving effect
to preferred stock dividends, the net income attributable to common stock was
$272,000 as compared to a net loss of $211,000, respectively.
For the year ended July 31, 1995, revenues from sales of condominium apartments
at Century Village represented approximately 73% of total revenues while
producing an average gross margin of 18% as compared to 76% of total revenues
at an average gross margin of 15% for the corresponding period ended July 31,
1994. The following table presents pertinent information related to deliveries
of condominium apartments at Century Village:
<TABLE>
<CAPTION>
Deliveries - Year Ended July 31,
---------------------------------------------------
1995 1994
--------------------------------- ----------------------------------
Number Average Number Average
of Units Revenues Sales Gross of Units Revenues Sales Gross
Delivered (000's) Price Margin Delivered (000's) Price Margin
--------- -------- ------- ------ --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
479 $37,340 $78,000 18% 491 $35,992 $73,300 15%
</TABLE>
Revenues from sales of condominium apartments are recognized only upon the
closing (delivery) of the sales contract. Fluctuations in average sales prices
at Century Village are generally a function of the location of condominium
buildings (e.g. lakefront) and to a lesser extent, the mix of condominium
apartments within the building. The 3% increase in gross margin is principally
attributable to the $4,700 increase in the average sales price of units
delivered in 1995. This increase was partially offset by an increase in cost of
sales caused by higher interest cost on the Company's variable rate borrowings,
brought about by increases in the prime rate, and normal increases in per unit
construction and site improvement costs.
20
<PAGE> 117
A comparison of the Company's inventories and backlog (under contract for sale
but not yet delivered) at Century Village follows:
<TABLE>
<CAPTION>
July 31, 1995 July 31, 1994
--------------------- ---------------------
Number of Number of
Condominium Condominium
Apartments Apartments
--------------------- ---------------------
Completed Completed
or Under or Under
Construction Backlog Construction Backlog
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Completed but not
yet delivered 50 29 33 25
Under construction 620 190 496 256
--- --- --- ---
670 219 529 281
=== === === ===
Aggregate sales
value (000's) $16,694 $21,361
Average sales price $76,200 $76,000
</TABLE>
A comparison of the Company's new sales orders at Century Village is presented
below:
<TABLE>
<CAPTION>
Year Ended
July 31,
------------------
1995 1994
------- -------
<S> <C> <C>
New sales orders (a) 417 515
Aggregate sales
value (000's) $32,200 $38,500
Average sales price $77,200 $74,800
</TABLE>
---------------
(a) Net of cancellations.
Management believes that the decline in the Company's sales activity was
attributable to an increase in the number of prior year sales as a result of the
damage caused by Hurricane Andrew, general economic conditions, and a relatively
mild winter in the northeast.
21
<PAGE> 118
During the years ended July 31, 1995 and 1994, revenues from sales of real
estate (excluding Glen Abbey) amounted to approximately $2.1 million and $.4
million, respectively, and consisted of property located in Coconut Creek,
Florida, the cost of which approximated net sales proceeds.
For the years ended July 31, 1995 and 1994, recreation and maintenance fees
were $7.5 million and $6.8 million, respectively, consisting of $5.3 million
and $4.8 million, respectively, of revenues pursuant to the long-term
Recreation Leases of the Recreation Facilities with unit owners occupying
approximately 6,500 Century Village condominium apartments delivered through
July 31, 1995 and $2.2 million and $2 million, respectively, of revenues from
master management agreements, under which the Company provides certain
maintenance and community services.
For both years ended July 31, 1995 and 1994, other revenues amounted to $3.5
million and principally consisted of revenues from the golf course operations at
Century Village, real estate brokerage commissions at the four Century Village
communities in southeast Florida, social program activities at the Recreation
Facilities and title insurance agency services provided on sales at Century
Village (see Note 6 to Consolidated Financial Statements). Operating costs
amounted to $7.3 million for the year ended July 31, 1995, as compared to $6.9
million for the previous fiscal year, and consisted principally of costs
incurred for the operation of the Recreation Facilities, the master management
agreements, four real estate brokerage offices and the Company's title insurance
agency. The $.4 million increase in operating costs is primarily attributable to
normal increases of certain expenses associated with the Recreation Facilities
and master management operations.
Interest incurred for the year ended July 31, 1995 amounted to $5.2 million as
compared to $4.9 for the year ended July 31, 1994. Interest capitalized to
inventories at Century Village and Glen Abbey approximated $3.4 million in
1995, as compared to $3.2 in the previous fiscal year, resulting in net
interest expense of $1.8 million and $1.7 million, respectively. Interest
incurred, which is based on borrowings whose interest rates are substantially
tied to the prime rate (see Note 4 to Consolidated Financial Statements),
increased during fiscal 1995 principally due to a 1.5% rise in the prime rate
which occurred during the fiscal year. In addition, effective March 31, 1995,
the Company redeemed its $5 million 10% Preferred Stock in exchange for a $5
million 10% note.
22
<PAGE> 119
During the fiscal years ended July 31, 1995 and 1994, selling and marketing
costs expensed were $4.2 million and $3.6 million, respectively, primarily
attributable to the reduced sales pace in fiscal 1995. Selling and marketing
costs incurred are capitalized and amortized to expense as condominium
apartments are delivered at Century Village, based on the average capitalized
cost per apartment sold.
General and administrative expenses generally consist of corporate overhead and
administration of Century Village. However, fiscal 1995 general and
administrative expenses also reflect approximately $.7 million of non-recurring
items consisting of: (i) professional fees incurred in a lawsuit brought by the
Company against a utility company for damages and reimbursement of professional
fees at the Company's Glen Abbey project (see Item 3, Legal Proceedings); (ii)
costs incurred to explore the potential acquisition of a tract of land for a
future project, which was determined not to be feasible; and, (iii) costs
related to a change in health insurance programs. Excluding these non-recurring
costs, general and administrative expenses for fiscal 1995 decreased by
approximately $.2 million as compared to the preceding year, primarily due to
reductions in administrative salaries.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended July 31, 1996 and 1995, the Company generated net cash flow
from operating activities of $5.2 million and $6.8 million, respectively. Of
these amounts, cash flow attributable to net reductions in real estate
inventories amounted to $5.1 million in each year, principally due to delivery
of 409 and 479 condominium apartments, in fiscal 1996 and 1995, respectively,
and the sale of unimproved land in Coconut Creek during fiscal 1995. As a
result of the positive cash flow from operations, the Company was able to reduce
net borrowings by $3.3 million and $6 million during fiscal 1996 and 1995,
respectively. The 1995 decrease was net of a $5 million increase in borrowings
in connection with the Company's redemption of its Preferred Stock. Although
the Company has been successful in generating positive cash flow from operating
activities since its inception in July 1992, there is no assurance that the
Company will be able to achieve or sustain positive cash flow from operating
activities in the future.
For the year ended July 31, 1996, net cash flow used by investment activities
amounted to $1.9 million, as compared with $.5 million in the previous year.
The 1996 amount reflects the recently completed Club Health which is part of
the Recreation Facilities (see Business - Residential Development - Century
Village).
23
<PAGE> 120
The Company's borrowings at July 31, 1996 amounted to $45.3 million,
substantially due to CV Reit. See Note 4 to Consolidated Financial Statements
for a description of the Company's borrowings. This amount includes $25 million
which presently requires monthly interest only payments but which is scheduled
to be converted by July 31, 1998 to an 11%, 25 year self-amortizing loan
providing for equal monthly payments of principal and interest. Substantially
all of the remaining $6.9 million of borrowings (excluding the CV Reit lines of
credit - see below) matures in fiscal 1998, including $1.9 million which
requires principal payments based on release prices of condominium apartments or
homesites delivered. The Company's borrowings require interest payments
generally on a monthly basis.
The Company's cash flow from operations, net of its construction and other
operating requirements, has not been sufficient to satisfy its payment
obligations required under its borrowings. Consequently, the Company has
relied on borrowings under its lines of credit from CV Reit (the "Lines of
Credit" - see Note 4 to Consolidated Financial Statements), amounting to $15
million at July 31, 1996, of which $7.5 million matures in fiscal 1997 and $7.5
million in fiscal 1998. At July 31, 1996, the outstanding balance of the Lines
of Credit was $13.4 million. The Company also has a revolving credit agreement
with H. Irwin Levy, Chairman of the Board and Chief Executive Officer of the
Company, under which the Company may borrow up to $750,000 through May 1997
(the "Levy Note" - see Note 4 to Consolidated Financial Statements). Since
September 1995, there has been no outstanding balance under the Levy Note. The
Company anticipates that funds generated in the ordinary course of business and
availability under the Lines of Credit and the Levy Note will be sufficient to
satisfy its cash flow needs.
The amount of available funds under the Lines of Credit is limited based on
available collateral, as defined. At July 31, 1996, the available collateral
exceeded the outstanding balance of the Lines of Credit by approximately $4.2
million. The Company also is restricted from incurring or guaranteeing
additional debt financing under certain circumstances (see Note 4 to
Consolidated Financial Statements). Substantially all the Company's assets are
pledged as collateral for the Company's borrowings.
The Company attempts to minimize its investment in inventory. In addition to
construction of condominium apartments at Century Village and development of
homesites at Glen Abbey, significant capital outlays for amenities and
infrastructure are required in advance of deliveries of apartments and
homesites. The Company has no material commitments for capital expenditures
other than those incurred in connection with its development and construction
activities in the ordinary course of business at Century Village and Glen
Abbey. To complete Century Village, the Company will incur costs in connection
with the remaining 869 apartments to be delivered, including the construction
of the condominium buildings and infrastructure improvements, including the
installation of
24
<PAGE> 121
water and sewer service, drainage facilities, paving and grading, and
landscaping. Substantially all of the Recreation Facilities have already been
completed. At Glen Abbey, homesite improvements will include water and sewer
service, drainage facilities, and paving and grading.
The Company's current major business activities consist of development and
other real estate related activities principally at Century Village. As of
July 31, 1996, 89% of the planned community had been delivered and
approximately 869 condominium apartments remained to be delivered. If the
Company engages in future real estate development activities, it will require
outside financing which may or may not be available. In the event the Company
decides not to engage in any further real estate development activities, its
long-term revenues are anticipated to be generated principally from net
revenues derived under the long-term Recreation Leases, net of the related debt
service requirement, and from earnings on funds expected to be available from
deliveries of Century Village condominium apartments. In that event, the
Company anticipates that its revenues will be sufficient to satisfy its cash
requirements. However, there is no assurance that revenues will be sufficient
for such purposes.
INFLATION
The Company, as well as the home building industry in general, may be adversely
affected during periods of high inflation, primarily because of higher
material, labor and financing costs. In particular, interest rates on a
significant portion of the Company's borrowings are variable subject to a floor
of 9% and a ceiling of 11%. Increases in the prime rate could result in
increased interest cost to the Company in addition to possible reduced sales
activity, potentially resulting in reduced profitability. The Company may
attempt to pass through to its customers any increases in costs through
increased selling prices. However, this may not always be possible due to
competitive factors in the marketplace.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-K,
that are not related to historical results, are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events which may not prove to be accurate.
These forward looking statements involve risks and uncertainties including but
not limited to the Company's future
25
<PAGE> 122
cash flows and liquidity, gross margins, revenues and expenses, the effect of
conditions in the residential real estate market and the economy in general, the
level and volatility of interest rates, as well as certain other risks described
in this report. Subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by cautionary statements in this paragraph and
elsewhere described in this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 27
Consolidated Financial Statements:
Balance Sheets - July 31, 1996 and 1995 28
Statements of Operations -
Years Ended July 31, 1996, 1995 and 1994 29
Statements of Stockholders' Equity -
Years Ended July 31, 1996, 1995 and 1994 30
Statements of Cash Flows -
Years Ended July 31, 1996, 1995 and 1994 31
Notes to Consolidated Financial Statements 32-42
</TABLE>
Schedules are omitted because the amounts are not material
or such required disclosures are set forth in the
consolidated financial statements or the notes thereto.
26
<PAGE> 123
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Hilcoast Development Corp.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Hilcoast
Development Corp. and subsidiaries as of July 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hilcoast Development
Corp. and subsidiaries at July 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Miami, Florida
September 20, 1996
27
<PAGE> 124
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
July 31,
-----------------
1996 1995
ASSETS (Note 4) ------- -------
<S> <C> <C>
Cash:
Unrestricted $ 21 $ 46
Restricted 773 764
Inventories and properties held
for development and sale (Note 2) 30,234 35,383
Property and equipment, net of
accumulated depreciation (Note 3) 19,754 19,110
Prepayments and other assets 2,813 2,834
------- -------
$53,595 $58,137
======= =======
LIABILITIES
Borrowings (Note 4) $45,348 $48,611
Accounts payable, accruals and
other liabilities 3,993 4,680
Deposits, principally from customers 2,033 1,933
Deferred income taxes (Note 5) 386 640
------- -------
Total liabilities 51,760 55,864
------- -------
Contingencies (Note 7)
STOCKHOLDERS' EQUITY
(Note 8)
10% Cumulative Peferred Stock; $1,000
stated value; shares authorized
10,000; none outstanding - -
Common Stock; $.01 par; shares authorized
6,000,000; outstanding 2,362,320 24 24
Additional paid-in capital 2,481 2,481
Deficit (670) (232)
------- -------
Total stockholders' equity 1,835 2,273
------- -------
$53,595 $58,137
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 125
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------
1996 1995 1994
Revenues: --------- --------- ---------
<S> <C> <C> <C>
Sales:
Condominium apartments $ 30,917 $ 37,340 $ 35,992
Land and other 367 2,918 926
Recreation and maintenance fees 8,263 7,541 6,807
Other (Note 6) 3,483 3,514 3,511
--------- --------- ---------
43,030 51,313 47,236
--------- --------- ---------
Expenses:
Cost of sales:
Condominium apartments 26,678 30,717 30,682
Land and other 282 2,670 784
Operating costs 7,569 7,337 6,936
Interest:
Incurred 5,318 5,158 4,870
Capitalized (2,959) (3,387) (3,208)
Depreciation 1,279 1,255 1,205
Selling and marketing 3,838 4,245 3,597
General and administrative 1,700 2,335 1,858
--------- --------- ---------
43,705 50,330 46,724
--------- --------- ---------
Income (loss) before income tax
expense (benefit) (675) 983 512
Income tax expense (benefit)
(Note 5) (237) 378 223
--------- --------- ---------
Net income (loss) (438) 605 289
Preferred stock dividends - 333 500
--------- --------- ---------
Net income (loss) available
for common stockholders $ (438) $ 272 $ (211)
========= ========= =========
Net income (loss) per common share:
Primary and fully diluted $ (.19) $ .11 $ (.09)
========= ========= =========
Average common shares
considered outstanding:
Primary and fully diluted 2,362,320 2,506,562 2,352,320
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 126
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In
Stock Stock Capital Deficit
--------- ------ ---------- -------
<S> <C> <C> <C> <C>
Balances, July 31, 1993 $5,000 $ 24 $2,466 $ (293)
Preferred Stock dividends - - - (500)
Net income for the year
ended July 31, 1994 - - - 289
------- ----- ------ ------
Balances, July 31, 1994 5,000 24 2,466 (504)
Preferred Stock dividends - - - (333)
Redemption of Preferred
Stock (5,000) - - -
Issuance of 10,000 shares
of Common Stock pursu-
ant to Stock Option Plan - - 15 -
Net income for the year
ended July 31, 1995 - - - 605
------ ----- ------ ------
Balances, July 31, 1995 - 24 2,481 (232)
Net loss for the year
ended July 31, 1996 - - - (438)
------ ----- ------ ------
Balances, July 31, 1996 $ - $ 24 $2,481 $ (670)
====== ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 127
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (438) $ 605 $ 289
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 1,279 1,255 1,205
Deferred income tax expense (benefit) (254) 283 223
Changes in assets and liabilities:
Decrease in inventories and properties
held for development and sale 5,149 5,085 33
(Increase) decrease in restricted cash (9) 416 1,085
Decrease in prepayments and other assets 21 243 14
(Decrease) increase in accounts payable,
accruals and other liabilities (687) (511) 1,573
Increase (decrease) in deposits 100 (597) 348
------- ------- -------
Net cash provided by operating activities 5,161 6,779 4,770
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,923) (504) (699)
------- ------- -------
Net cash used by investing activities (1,923) (504) (699)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings:
CV Reit 17,868 22,235 20,930
Other 350 2,381 84
Repayments on borrowings:
CV Reit (20,685) (22,580) (21,559)
Other (796) (8,062) (3,047)
Cash dividends paid on Preferred Stock - (375) (500)
Proceeds on issuance of Common Stock - 15 -
------- ------- -------
Net cash used by financing activities (3,263) (6,386) (4,092)
------- ------- -------
Net decrease in unrestricted cash during year (25) (111) (21)
Unrestricted cash at beginning of year 46 157 178
------- ------- -------
Unrestricted cash at end of year $ 21 $ 46 $ 157
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 5,331 $ 5,079 $ 4,814
======= ======= =======
Income taxes $ 211 $ 5 $ -
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Redemption of Preferred Stock in exchange
for note payable $ - $ 5,000 $ -
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 128
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Hilcoast
Development Corp. and all wholly-owned subsidiaries (the "Company"). Significant
intercompany balances and transactions have been eliminated in consolidation.
BUSINESS
The Company is engaged in the design, development, construction, marketing and
sale of condominium apartments at Century Village at Pembroke Pines ("Century
Village"), an adult condominium project in southeast Florida, the operation of
the recreation facilities located at the project ("Recreation Facilities") and
certain other real estate related businesses.
The Company is also engaged in the development and sale of single family
homesites in a golf course community known as Glen Abbey in Volusia County,
Florida.
REVENUE RECOGNITION
Revenues from sales of real estate are recognized when closings have occurred
and minimum down payment and other criteria are
32
<PAGE> 129
satisfied in accordance with generally accepted accounting principles governing
profit recognition for real estate transactions.
Purchasers of Century Village condominium apartments lease certain of the
Recreation Facilities under a 50 year lease arrangement. Rents from these
facilities are accounted for under the operating method.
RESTRICTED CASH
Restricted cash principally consists of escrow deposits received from purchasers
of condominium apartments and in connection with the Company's real estate
brokerage activities.
INVENTORIES AND PROPERTIES HELD FOR DEVELOPMENT AND SALE
Inventories and properties held for development and sale are stated at the
lower of cost or estimated net realizable value. Interest, real estate taxes
and similar costs are capitalized to land and construction costs during the
development and construction period and are amortized to cost of sales as
closings occur.
SELLING AND MARKETING COSTS
Selling and marketing costs associated with Century Village are capitalized and
amortized as related closings occur and revenues are recognized.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment, principally consisting of the Recreation Facilities, is
stated at cost. Major renewals and improvements are capitalized while
replacements, maintenance and repairs not extending or improving the useful
lives of assets are expensed as incurred. Depreciation is provided principally
under the straight-line method over the estimated useful lives ranging from 3 to
40 years. Depreciation on certain construction related assets is capitalized
and amortized to cost of sales as closings occur.
INCOME TAXES
Income taxes are provided under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
The provision for income taxes includes deferred taxes resulting from temporary
differences in the bases of assets and liabilities for tax and financial
reporting purposes.
33
<PAGE> 130
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed by dividing net income less
Preferred Stock dividends by the weighted average number of common shares
outstanding during the year, and is adjusted for the assumed conversion of
shares issuable upon exercise of stock options, after the assumed repurchase of
common shares with the related proceeds. Stock options have not been included
in the calculation for the years ended July 31, 1996 and 1994 as the effect
would have been anti-dilutive. For the year ended July 31, 1995, 260,000 shares
(equivalent to 144,435 shares using the treasury stock method) issuable upon
exercise of options previously granted, have been treated as outstanding. These
additional shares were included in the calculation of net income per common
share because such options were exercisable at prices below the current market
price.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
unrestricted highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including accounts payable and
borrowings approximated fair value.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which the Company will be required to implement for its fiscal
year ending July 31, 1997. The statement requires that long-lived assets must
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If the sum of
the expected future cash flows (undiscounted and without interest charges) from
an asset to be held and used is less than the carrying value of the asset, an
impairment loss must be
34
<PAGE> 131
recognized in the amount of the difference between the carrying value and fair
value. Assets to be disposed must be valued at the lower of carrying value or
fair value less costs to sell.
Management believes that if this standard were to be implemented currently,
there would not be an impairment loss; however, until it is implemented,
management will periodically reassess the Company's situation in relation to
SFAS No. 121.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 123 "Accounting for Stock-Based Compensation". SFAS
123 allows companies to continue to account for their stock option plans in
accordance with APB Opinion 25 but encourages the adoption of a new accounting
method which requires the recognition of compensation expense based on the
estimated fair value of employee stock options. Companies electing not to
follow the new fair value based method for stock options are required to provide
expanded footnote disclosures, including pro forma net income and earnings per
share. The Company expects to continue to account for its stock option plans in
accordance with APB Opinion 25 and provide supplemental disclosures as required
by SFAS 123.
(2) INVENTORIES AND PROPERTIES HELD FOR DEVELOPMENT AND SALE
Inventories and properties held for development and sale consist of the
following (in thousands):
<TABLE>
<CAPTION>
July 31,
-------------------
1996 1995
Century Village: -------- --------
<S> <C> <C>
Land under development for
condominium buildings $11,499 $16,041
Condominium buildings completed
or under construction 14,197 15,243
Capitalized interest 1,972 1,643
------- -------
27,668 32,927
Land under development, Volusia
County, Florida (Glen Abbey) 2,566 2,456
------- -------
$30,234 $35,383
======= =======
</TABLE>
Substantially all inventories and properties held for development and sale are
pledged as collateral for indebtedness (Note 4).
35
<PAGE> 132
(3) PROPERTY AND EQUIPMENT
Major classifications of property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
July 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Recreation Facilities $21,205 $19,258
Commercial buildings and improvements 1,438 1,410
Machinery and equipment, primarily
used in construction 1,501 1,385
Golf course and golf course clubhouse 1,237 1,228
------- -------
25,381 23,281
Less accumulated depreciation 5,627 4,171
------- -------
$19,754 $19,110
======= =======
</TABLE>
Substantially all property and equipment is located in Century Village and
pledged as collateral for indebtedness (Note 4).
(4) BORROWINGS
Borrowings, substantially consisting of mortgage notes collateralized by all
major assets of the Company, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
July 31,
------------------
1996 1995
Mortgage notes payable ------- -------
<S> <C> <C>
to CV Reit, Inc. ("CV Reit")
(Note 4(a)):
Term Loan $25,000 $26,477
Lines of Credit 13,415 12,140
Preferred Stock Redemption Note 5,000 5,000
Recreation Facilities Note - 1,700
Land Acquisition Note 564 1,350
Glen Abbey Note 1,320 1,449
------- -------
45,299 48,116
------- -------
Levy Note (Note 4(b)) - 390
Other 49 105
------- -------
49 495
------- -------
$45,348 $48,611
======= =======
</TABLE>
(A) CV REIT
36
<PAGE> 133
TERM LOAN/LINES OF CREDIT
At July 31, 1996, the Company's loan agreement with CV Reit (the "Loan
Agreement") primarily consisted of a term loan (the "Term Loan") and $15
million revolving lines of credit (the "Lines of Credit"). The Term Loan and
$7.5 million of the Lines of Credit bear interest, payable monthly, at prime
(8.25% at July 31, 1996) plus 3%, but in any event not less than 9% nor more
than 11%, and mature on July 31, 1998, except as described below with respect
to the conversion of the Term Loan. The remaining $7.5 million of the Lines of
Credit bears interest, payable monthly, as follows: (i) $3 million at prime
plus 3%, with a floor of 11%, which matures on May 31, 1997; (ii) $2.5 million
at 12.5% of which $2 million matures on February 28, 1997 and $.5 million on
May 31, 1997; and (iii) $2 million at 12% which matures on November 30, 1996.
Specific release prices, principally for the condominium apartments at Century
Village, are required to be applied as permanent reductions of the Lines of
Credit. The amount of available funds under the Lines of Credit is limited
based on available collateral, as defined. The Term Loan and Lines of Credit
are collateralized by all major assets of the Company.
Upon the earlier to occur of delivery of the last unit at Century Village or
July 31, 1998, the Term Loan will be converted to an 11%, fixed rate, 25 year
self-amortizing loan providing for equal monthly payments of principal and
interest (the "Permanent Loan"). The Permanent Loan will be collateralized by
the Recreation Facilities and may not be prepaid without incurring a prepayment
penalty equal to the greater of 5% of the amount prepaid or an amount
determined pursuant to a formula based upon the yield of certain U.S. Treasury
Issues.
Until the Permanent Loan is satisfied in full, the wholly-owned subsidiary of
the Company which owns the Recreation Facilities will not be permitted to incur
or guarantee additional debt financing, except for that related to the
operation of the Recreation Facilities.
At July 31, 1996, there was approximately $300,000 outstanding in letters of
credit issued by CV Reit to municipalities in connection with certain of the
Company's development requirements at Century Village and Glen Abbey. In
addition, a $1.5 million letter of credit has been issued by a bank for the
benefit of the State of Florida, guaranteed by CV Reit, which allows the Company
to utilize up to that amount of customer deposits previously required to be held
in restricted escrow accounts.
PREFERRED STOCK REDEMPTION NOTE
In March 1995, the Company redeemed its $5 million 10% Cumulative Preferred
Stock owned by CV Reit, in exchange for a $5 million note payable to CV Reit,
which is collateralized by the Recreation
37
<PAGE> 134
Facilities, bears interest, payable quarterly, at 10% and matures on July 31,
1998.
LAND ACQUISITION NOTE
In connection with the acquisition in August 1993 of land adjacent to Century
Village, the Company issued a $1.35 million note to CV Reit, which is
collateralized by the acquired land, bears interest, payable monthly, at 12%,
matures on July 31, 1998 and provides for specific release prices based on
sales of condominium apartments.
GLEN ABBEY NOTE
The Glen Abbey Note is collateralized by the unsold homesites at the Glen Abbey
project, bears interest, payable monthly, at prime plus 3%, but in no event
less than 9% nor more than 11%, matures on December 31, 1997 and is recourse to
the extent of the Company's guarantee of the first $1.5 million principal of
the note. Payments of principal are based on release prices for the homesites.
(B) LEVY NOTE
The Company and H. Irwin Levy have entered into an unsecured revolving credit
agreement ("Levy Note") allowing the Company to borrow up to $750,000 from Mr.
Levy in the event the Company's availability under the CV Reit Lines of Credit
does not exceed $50,000. The Levy Note bears interest, payable monthly, at
prime plus 1/2% and matures on May 1, 1997, as extended.
Mr. Levy is the Chairman of the Board and Chief Executive Officer of the
Company and is a principal stockholder of CV Reit.
(C) MATURITIES
Scheduled and estimated maturities of the Company's borrowings are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ended July 31,
<S> <C>
1997 $ 6,768
1998 12,740
1999 440
2000 463
2001 489
Thereafter 24,448
-------
$45,348
=======
</TABLE>
38
<PAGE> 135
(5) INCOME TAXES
(a) The provision for income taxes is as follows:
<TABLE>
<CAPTION>
July 31,
----------------------
1996 1995 1994
Current: ------ ------ ------
<S> <C> <C> <C>
Federal $ 14 $ 93 $ -
State 3 2 -
----- ---- ----
17 95 -
Deferred: ----- ---- ----
Federal (217) 235 190
State (37) 48 33
----- ---- ----
(254) 283 223
----- ---- ----
$(237) $378 $223
===== ==== ====
</TABLE>
(b) Income tax expense differs from the amount computed by multiplying income
before income tax expense by the statutory federal income tax rate
principally due to state income taxes.
(c) The approximate effect of temporary differences and carry-forwards that
gave rise to deferred tax assets and liabilities were as follows (in
thousands):
<TABLE>
<CAPTION>
July 31,
--------------
1996 1995
Deferred tax liabilities: ------ ------
<S> <C> <C>
Differences in reporting selling and
marketing expense for tax purposes $ 746 $ 725
Differences in reporting interest
expense for tax purposes 241 166
Excess tax over book depreciation 191 199
Other 15 -
------ ------
1,193 1,090
------ ------
Deferred tax assets:
Differences in reporting inventory
for tax purposes (25) (5)
Net operating loss carryforward (673) (347)
Alternative minimum tax carryforward (106) (93)
Other (3) (5)
------ ------
(807) (450)
------ ------
Net deferred tax liabilities $ 386 $ 640
====== ======
</TABLE>
39
<PAGE> 136
(d) As of July 31, 1996, the Company had a net operating loss carryforward
for tax purposes of approximately $1.8 million which expires from 2009
through 2011.
(6) OTHER REVENUES
Other revenues consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Golf course operations $1,090 $1,081 $1,149
Real estate brokerage 1,004 1,028 843
Social program activities 591 562 515
Title insurance agency 371 413 447
Consulting fees (a) 143 120 120
Other 284 310 437
------ ------ ------
$3,483 $3,514 $3,511
====== ====== ======
</TABLE>
- ---------------
(a) Effective July 31, 1992, the Company and CV Reit entered into a
consulting and advisory agreement under which the Company provides
investment, advisory, consulting and administrative services to CV Reit,
excluding matters related to the Company's indebtedness to CV Reit. The
agreement, which originally expired on July 31, 1994, has been extended to
July 31, 1997, provides for payment of monthly fees of $10,000 plus
reimbursement of out of pocket expenses, and may be terminated upon 180
days notice by the Company and upon 30 days notice by CV Reit.
(7) CONTINGENCIES
(a) On September 16, 1993, the Company filed a Complaint in the Circuit
Court, Seventh Judicial Circuit, in and for Volusia County, Florida,
seeking unspecified damages against a utility company, claiming inverse
condemnation and trespass at the
40
<PAGE> 137
Company's Glen Abbey project. On March 18, 1994, the Court granted a
Motion for Summary Judgment holding the defendant liable for trespass and
inverse condemnation. On April 5, 1995, the Court vacated the Summary
Judgment and in February 1996, the Court ruled that the Company is not
entitled to recovery under the theory of inverse condemnation. The
trespass claims, which include a claim for damages caused by flooding, have
not been tried and no trial date has been set. The Company has appealed
the Court's decision. If the Appellate Court reverses the order, the
inverse condemnation damages claim would be remanded to the Circuit Court.
The Company also expects to pursue its trespass claim.
The Company is unable to predict the outcome of an appeal or the amount of
damages, if any, which may be awarded to the Company on either the trespass
or inverse condemnation claims. In addition, any award of damages to the
Company will be subject to appeal by the defendant and, accordingly, there
can be no assurance that the Company will ultimately recover any damages.
(b) The Company is subject to various claims, complaints and performance
guarantees in the ordinary course of operations, including obligations
relating to performance and maintenance bonds (or letters of credit in lieu
thereof), completion of the Recreation Facilities, subsidies for
condominium associations, and condominium owner warranties.
In Management's opinion, the ultimate outcome of the aforementioned matters will
not have a material adverse effect on the Company's financial condition.
(8) STOCK OPTION PLAN
The Company has two stock option plans: (i) the 1992 Stock Option Plan (the
"1992 Plan"); and (ii) the 1995 Stock Option Plan (the "1995 Plan"). The
Company has reserved 300,000 shares of Common Stock for issuance under each
plan, of which options to purchase 285,000 shares and 40,000 shares,
respectively, have been granted (at option prices equal to or exceeding fair
market value at date of grant) to various directors and officers of the
Company, generally becoming exercisable commencing two or three years from date
of grant and expiring seven or ten years from date of grant. A summary of
changes in common stock options follows:
<TABLE>
<CAPTION>
Number of Option
Shares Price
--------- -----------
1992 Plan
<S> <C> <C>
Outstanding at July 31, 1992 250,000 $1.50-$4.00
Granted during fiscal 1993 35,000 $2.63-$4.00
-------
Outstanding at July 31, 1993
and 1994 285,000 $1.50-$4.00
Exercised during fiscal 1995 (10,000) $1.50
-------
Outstanding at July 31,
1995 and 1996 275,000 $1.50-$4.00
=======
Exercisable at July 31:
1996 269,000 $1.50-$4.00
=======
1995 215,000 $1.50-$4.00
=======
1994 101,500 $1.50
=======
</TABLE>
41
<PAGE> 138
<TABLE>
<CAPTION>
Number of Option
Shares Price
--------- -----------
1995 Plan
<S> <C> <C>
Granted during fiscal 1996 and
outstanding at July 31, 1996 40,000 $4.38
=======
Exercisable at July 31, 1996 -
=======
</TABLE>
(9) RECENT DEVELOPMENT - PROPOSED MERGER
On August 12, 1996, the Company's Board of Directors received an unsolicited
proposal from Mr. Levy, contemplating a merger of the Company and a newly
formed acquisition company to be organized by Mr. Levy, pursuant to which each
of the Company's outstanding shares of Common Stock would be converted into
$6.00 cash. A special independent committee of the Board has been appointed to
consider the proposal and in connection therewith, has engaged financial and
legal advisors.
The proposed merger is subject to approval of the Company's Board of Directors
and shareholders and a number of other material conditions, including
negotiation of a definitive agreement and compliance with all applicable
regulatory and governmental requirements. Accordingly, there can be no
assurance that the proposed merger will be consummated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
42
<PAGE> 139
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Set forth below is the name, age, position with the Company and certain other
information with respect to each director and executive officer. Each person
was elected or appointed to his or her position on July 31, 1992.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
H. Irwin Levy 70 Chairman of the Board, Chief Executive Officer
Michael S. Rubin 53 President, Chief Operating Officer, Director
Jack Jaiven 50 Executive Vice President, Chief Financial Officer,
Treasurer, Director
Michael A. Rich 50 Vice President - Marketing
James A. Geddes 58 Vice President - Construction
Harold Cohen 45 Vice President - Community Operations,
Assistant Secretary
Antoinette Gleeson 50 Vice President - Recreation
Joseph D. Weingard 51 Director
Bernard R. Green 77 Director
</TABLE>
43
<PAGE> 140
H. IRWIN LEVY was Chairman of the Board and Chief Executive Officer of
Cenvill Communities, Inc., a predecessor of CV Reit, from 1967 to July 1981 and
was Chairman of the Board and Chief Executive Officer of CV Reit from 1985 to
July 31, 1992. Mr. Levy was Chairman of the Board and President of Cenvill
Development Corp., a real estate developer ("Development"), from 1980 to 1985.
He is currently of counsel to the West Palm Beach law firm of Levy, Kneen,
Mariani, Curtin, Wiener, Kornfeld & del Russo. Since October 1995, Mr. Levy
has been a director of IMGE, Inc. (previously IMNET, Inc.) and was a director
of IMNET, Inc. from 1987 until July 1991.
MICHAEL S. RUBIN was Vice President - Real Estate Management of CV Reit
from May 1991 to July 31, 1992. From April 1990 to May 1991, Mr. Rubin was
engaged in real estate consulting for the Resolution Trust Corporation as the
Director of Real Estate for Grau and Company, certified public accountants.
From January 1983 to April 1990, Mr. Rubin served as President and Chief
Executive Officer of H.M.F. Investments, Inc., a wholly owned real estate
service subsidiary of Flagler Federal Savings and Loan Association of Miami.
From 1977 to 1982, Mr. Rubin served as President and Chief Operating Officer of
Wynmoor Properties, Inc., a wholly owned subsidiary of Development and the
general partner of Wynmoor Limited Partnership.
JACK JAIVEN, a Certified Public Accountant, was Vice President and
Treasurer of CV Reit from December 1988 to July 31, 1992. Mr. Jaiven was also
Vice President and Chief Financial Officer of IMNET, Inc. from July 1989 to
June 1991. From April 1985 to December 1988, Mr. Jaiven was Executive Vice
President and Chief Financial Officer of First American Bank and Trust. From
July 1981 to April 1985, Mr. Jaiven was employed by, and later became Vice
President - Special Projects of, Development. Mr. Jaiven was employed by
Cenvill Communities, Inc. as Director of Accounting from July 1979 until July
1981.
MICHAEL A. RICH was Vice President - Sales and Marketing of F.W.D.C.,
Inc., a wholly owned subsidiary of Development, from March 1991 until July 31,
1992 when he resigned to join the Company. From April 1990 through February
1991, Mr. Rich was President of Florida Real Estate Expositions, Inc., a real
estate marketing firm specializing in the presentation of tradeshows in the
northeastern United States for Florida developers and builders.
44
<PAGE> 141
Mr. Rich was Vice President - Sales and Marketing of Development from July 1981
through September 1989. In June 1992, certain subsidiaries of Development,
including F.W.D.C., Inc., filed Chapter 11 proceedings.
JAMES A. GEDDES was Vice President of Construction of F.W.D.C., Inc.
and/or Vice President of Construction of Coconut Creek Developers, Inc., a
wholly owned subsidiary of Development, for more than five years prior to his
resignation on July 31, 1992 to join the Company. In June 1992, certain
subsidiaries of Development, including F.W.D.C., Inc. and Coconut Creek
Developers, Inc., filed Chapter 11 proceedings.
HAROLD COHEN was Vice President of Cenvill Recreation, Inc. and its
related entities, from May 1987 until October 1994. Prior to that he was an
executive in the recreational management field. Cenvill Recreation, Inc. and
certain of its related entities were wholly owned subsidiaries of IMNET, Inc.
prior to their acquisition by Mr. Levy and certain members of his family in
December 1991.
ANTOINETTE GLEESON has been Clubhouse Director and Vice President of CVP
Community Center, Inc., a wholly owned subsidiary of Development which was
acquired by the Company, since July 1991. From November 1983 to July 1991 she
was Vice President of Cenvill Contractors, Inc., a wholly owned subsidiary of
Development and a general partner of Wynmoor Limited Partnership. In June
1992, certain subsidiaries of Development, including Cenvill Contractors, Inc.,
filed Chapter 11 proceedings.
JOSEPH D. WEINGARD was a director of CV Reit from May 1992 to July 31,
1992. Mr. Weingard has been a financial consultant in an individual capacity
since 1987 and is currently President of Century Financial Advisors, Inc.
Since October 1995, Mr. Weingard has been a director and vice president of
IMGE, Inc. and from 1981 until January 1992, was a director of that company and
served in various executive capacities, including Chief Executive Officer and
Vice Chairman. From 1987 until May 1991, Mr. Weingard also served as an
advisor to CV Reit. Mr. Weingard was a director of Development from July 1981
to January 1987. Mr. Weingard is a Certified Public Accountant and holds a
real estate salesman's license.
BERNARD R. GREEN is currently consultant to, and previously for more than
five years, was managing partner of, Friedman, Alpren & Green of New York, New
York, and West Palm Beach, Florida, an accounting firm specializing in real
estate. Mr. Green has been a private investor in real estate partnerships for
more than twenty years.
45
<PAGE> 142
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended July 31, 1996, the Board of Directors held two
meetings. No director attended fewer than 75 percent of the aggregate of (i)
the number of meetings of the Board of Directors held during the period he
served on the Board, (ii) the number of meetings of the Stock Option Committee
held during the period he served on such committee, and (iii) the number of
meetings of the Audit Committee held during the period he served on such
committee.
The Stock Option Committee is presently composed of Messrs. Levy, Weingard and
Green. The Stock Option Committee held one meeting in conjunction with a
regularly scheduled Board of Directors meeting during the fiscal year ended July
31, 1996. The Stock Option Committee administers the Company's 1992 Stock
Option Plan and 1995 Stock Option Plan.
The Audit Committee, presently composed of Messrs. Weingard, Green and Jaiven,
did not meet during the fiscal year ended July 31, 1996. The Audit Committee
is responsible for overseeing the financial reporting process and the
effectiveness of internal controls of the Company and for making recommendations
to the Board of Directors, including the designation of independent certified
public accountants on an annual basis. The Company has no other committees at
this time.
DIRECTOR'S COMPENSATION
Each director who is not an officer or employee of the Company receives $1,500
for each directors' meeting attended. Non-employee directors may also be
granted non-qualified stock options, at the discretion of the Stock Option
Committee, pursuant to the Company's 1992 Stock Option Plan and the Company's
1995 Stock Option Plan.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's directors and executive officers, and persons who
own more than ten percent of the Company's outstanding Common Stock, to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock. Such persons
are required by SEC regulation to furnish the Company with copies of all such
reports they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the officers, directors and greater than ten percent
beneficial owners of the Company complied with all applicable Section 16(a)
filing requirements.
46
<PAGE> 143
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation awarded
to, earned by or paid to the Chief Executive Officer of the Company and the
four most highly compensated executive officers other than the Chief Executive
Officer for services in all capacities to the Company and its subsidiaries
during the fiscal years ended July 31, 1996, 1995 and 1994. The Company did
not grant any stock appreciation rights or restricted stock awards, or make any
long-term incentive plan payouts, to the named executive officers during these
fiscal years. References to securities in the following table relate to awards
of stock options to purchase the Company's common stock.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compen-
Annual Compensation sation
---------------------------------- Awards
All ----------
Other Securities
Annual underlying
Name and Compen- Options/
Principal sation SARs
Position Year Salary Bonus (1)(2) # (3)
- -------- ---- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
H. IRWIN LEVY 1994 $156,000 $ - $ - -
Chairman and Chief 1995 159,060 - - -
Executive Officer 1996 165,360 - - -
MICHAEL S. RUBIN 1994 150,956 15,000 - -
President and Chief 1995 159,880 15,000 - -
Operating Officer 1996 166,036 12,500 - -
JACK JAIVEN 1994 139,984 10,000 - -
Executive Vice 1995 150,973 10,000 - -
President, Chief 1996 155,940 8,700 - -
Financial Officer
and Treasurer
MICHAEL A. RICH 1994 140,400 - 41,883 -
Vice President - 1995 145,022 2,725 38,192 -
Marketing 1996 151,189 2,731 34,445 20,000
JAMES A. GEDDES 1994 102,596 - 26,000 -
Vice President - 1995 107,086 1,998 26,160 -
Construction 1996 127,598 2,058 22,080 20,000
</TABLE>
- ---------------
(1) Except as specifically disclosed, does not include the dollar value of
personal benefits, such as the cost of automobiles and health insurance,
the aggregate value of which for each named executive officer was less
than 10% of such executive officer's salary and bonus.
47
<PAGE> 144
(2) Mr. Rich's Other Annual Compensation consists of commission of $75 for
each condominium apartment sold from August 1993 through January 1994 and
$85 from February 1994 through July 1996. Mr. Geddes' Other Annual
Compensation consists of commission of $40 for each condominium apartment
completed from August 1993 through January 1994 and $60 from February 1994
through April 1996.
(3) Consists of stock options granted for the fiscal year ended July 31, 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options to purchase the
Company's common stock granted pursuant to the 1995 Stock Option Plan during
the fiscal year ended July 31, 1996 to the executive officers named in the
summary Compensation Table. No SARs were granted.
<TABLE>
<CAPTION>
Individual Grants Potential
------------------- Realizable
Percent Value
Number of of Total at Assumed
Securities Options/ Annual Rates
Underlying SARs of Stock Price
Options/ Granted to Exercise Appreciation
SARs Employees or Base Expira- for Option Term
Granted in Fiscal Price tion -----------------
(#) (1) Year ($/sh) Date 5%($) 10%($)
--------- ---------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
H. Irwin Levy - - - - - -
Michael S. Rubin - - - - - -
Jack Jaiven - - - - - -
Michael A. Rich 20,000 50% $4.38 (1) $35,662 $83,108
James A. Geddes 20,000 50% $4.38 (1) $35,662 $83,108
</TABLE>
- -----------------
(1) Option awards reported for fiscal 1996 were granted April 26, 1996.
Options become exercisable on the earlier of the date of sale of the last
residential unit at Century Village in Pembroke Pines or July 31, 1998,
and expire on April 26, 2003.
48
<PAGE> 145
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised stock
options held by the named executive officers as of the end of the 1996 fiscal
year. No stock options were exercised by any of the named executive officers
during the 1996 fiscal year. No stock appreciation rights have been granted or
are outstanding.
OPTION EXERCISES DURING 1996 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at 1996 Options at 1996
Fiscal Year End Fiscal Year End
Shares (#) ($)(1)
Acquired ---------------- ------------------
on Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized cisable cisable cisable cisable
---- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
H. Irwin Levy - $ - - - $ - $ -
Michael S. Rubin - - 85,000 - 210,000 -
Jack Jaiven - - 85,000 - 210,000 -
Michael A. Rich - - 25,000 20,000 87,500 12,400
James A. Geddes - - 20,000 20,000 70,000 12,400
</TABLE>
- --------------------
(1) The closing bid price for the Company's Common Stock as reported on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
Small-Cap Market on July 31, 1996 was $5.00. Value is calculated by
multiplying (a) the difference between $5.00 and the option exercise price
by (b) the number of shares of Common Stock underlying the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a standing Compensation Committee during
the fiscal year ended July 31, 1996. Therefore, the entire Board of Directors
participated in deliberations concerning executive compensation.
H. Irwin Levy, Michael S. Rubin and Jack Jaiven, executive officers of the
Company, are members of the Board of Directors and participated in
deliberations concerning compensation.
49
<PAGE> 146
EMPLOYMENT AGREEMENTS
Each of the Company's executive officers have employment agreements with the
Company except for Mr. Levy. See Report on Executive Compensation for
information concerning their employment agreements.
The employment agreements provide that if an officer is terminated without
cause, or resigns as a result of a reduction of his or her compensation from
the present level, he or she will be entitled to severance pay ranging from six
months to one year based on the most recent annual rate of compensation, plus
commensurate medical coverge for the officer and his or her dependents.
Similar payments will be made in the event of the death or total disability of
an officer during his or her employment.
PERFORMANCE GRAPH
The following line-graph presentation compares cumulative stockholder returns
on the Company's Common Stock since April 27, 1993, the date the Common Stock
began trading on the NASDAQ Small-Cap Market, with (i) the NASDAQ Stock Market
index prepared by the Center for Research in Security Prices ("CRSP"), and (ii)
CRSP's index for companies in the real estate development industry with similar
Standard Industry Codes ("SIC") as the Company.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
Performance Graph for
HILCOAST DEVELOPMENT CORP.
<TABLE>
<CAPTION>
Index Description 07/31/92 07/31/93 07/30/94 07/29/95 07/31/96
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HILCOAST DEVELOPMENT CORP. N/A $ 97.5 $ 97.5 $ 92.5 $100.0
Nasdaq Stock Market Index $ 88.9 $108.1 $111.3 $156.2 $170.2
Nasdaq Stock SIC Index $116.7 $ 99.6 $118.5 $111.4 $ 83.9
</TABLE>
A. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
B. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
C. The index level for all series was set to 100.0 on 04/27/93, the day the
Company's Common Stock became listed for trading on the NASDAQ Small-Cap
Market. On 4/27/93, the closing sales price of the Common Stock was
$5.00. From 10/19/92 through 4/26/93, the Company's Common Stock was
traded on the over-the-counter market. The Company was advised by its
market makers that the initial trading price of the Common Stock on
10/19/92, the first trading day for the Common Stock, was $.75.
D. Peer group was created using a custom iteration of the data.
50
<PAGE> 147
REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended July 31, 1996, the Board of Directors of the
Company administered the compensation program for executive officers. The
executive compensation policies of the Company have been designed to acquire
and retain quality management producing results which will maximize shareholder
value.
In determining executive compensation, the Board of Directors gives
consideration to Company performance, individual performance, level of
responsibility and executive compensation paid by other companies in the same
industry. Specific factors considered include recommendations of the Company's
Chairman of the Board and its President, specific accomplishments of the
executive officers, the Company's sales, earnings and financial condition and
general economic conditions.
Compensation of the Company's executive officers consists of both cash
compensation and stock option grants. Cash compensation consists of salary
and, in the case of certain executive officers, commissions. Long-term
incentives are provided through the grant of qualified and non-qualified stock
options. The Company paid bonuses to certain executive officers during
December 1995 and January 1996, which related to the fiscal year ended July 31,
1995, based on the specific factors discussed above; however, the Board has not
determined whether bonuses will be paid for the fiscal year ended July 31, 1996
nor in the future.
With the exception of Mr. Levy, all of the Company's executive officers have
employment agreements with the Company which provide for increases in
compensation and bonuses from time to time as mutually agreed upon by such
officers and the Board. None of the agreements are for a specific term. One
executive officer, the Company's Vice President - Marketing, receives
additional incentive cash compensation in the form of commissions based on the
number of Century Village condominium apartments sold. Another officer, the
Vice President - Construction, received additional incentive cash compensation
through April 30, 1996 in the form of commissions based on the number of
condominium apartments completed. Effective May 1, 1996, his commissions were
discontinued and replaced by a significant increase in his base salary.
Effective February 1996, all officers with the exception of Mr. Levy received
increases of 3-1/2% in their base salaries. The Board of Directors intends to
review the cash compensation paid to all its officers annually and consider
increases based primarily upon individual performance. In addition, the Board
of Directors will consider Company performance, competitive factors, and
economic conditions.
The Company attempts to provide incentives to executive officers to remain with
the Company and to improve performance through the grant of stock options. There
are no automatic grants of stock options. During fiscal 1996, options were
granted to two executive officers.
51
<PAGE> 148
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
SECURITY OWNERSHIP
The following table sets forth, as of October 31, 1996, information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each of the
five most highly compensated executive officers of the Company, and (iv) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of of Beneficial Outstanding
Beneficial Owner (1) Ownership (2) Shares
- -------------------- ----------------- -----------
<S> <C> <C>
H. IRWIN LEVY 834,636 35.33%
100 Century Blvd.
West Palm Bech, FL 33417
ALAN J. EVANS AND ROBERT 128,000 (3) 5.4%
J. CARTAGENA, AS TRUSTEES
P.O. Box 727
Palm Beach, FL 33480
ALAN J. EVANS 155,424 (4) 6.6%
P.O. Box 727
Palm Beach, FL 33480
ROBERT J. CARTAGENA 133,866 (5) 5.7%
P.O. Box 727
Palm Beach, FL 33480
MICHAEL S. RUBIN 85,000 (2) 3.6%
JACK JAIVEN 85,407 (2) 3.5%
MICHAEL A. RICH 36,147 (2) 1.5%
JAMES A. GEDDES 20,000 (2) (7)
JOSEPH D. WEINGARD - -
185 NW Spanish River Blvd.
Boca Raton, FL 33481
BERNARD R. GREEN 11,256 (2) (7)
583 North Lake Way
Palm Beach, FL 33480
MAURICE A. HALPERIN 585,032 (6) 24.8%
BARRY S. HALPERIN
2500 No. Military Trail
Boca Raton, FL 33431
All executive officers 1,087,548 (2) 41.8%
and directors as a group
(9 persons)
</TABLE>
52
<PAGE> 149
- ---------------------------
(1) Unless otherwise indicated, the address of each beneficial owner listed
is 19146 Lyons Road, Boca Raton, FL 33434.
(2) Unless otherwise indicated, each stockholder listed has the sole power to
vote and direct disposition of the shares of Common Stock shown as
beneficially owned by such stockholder. For the purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of the
following shares which such person or group has the right to acquire
pursuant to options exercisable within 60 days: Mr. Rubin - 85,000
shares; Mr. Jaiven - 85,000 shares; Mr. Rich 25,000 shares; Mr. Geddes
- 20,000 shares; Mr. Green - 10,000 shares; and all executive officers
and directors as a group - 240,000 shares. See "Executive Compensation".
(3) Consists of shares held by The Claudia Morse Evans Family Trust for which
Alan J. Evans and Robert J. Cartagena, as Trustees, share voting and
dispositive power. The information with respect to such trust is based
upon Schedule 13D, dated March 7, 1994.
(4) Includes 128,000 shares held by The Claudia Morse Evans Family Trust for
which Mr. Evans is a trustee and 27,424 shares held by Alan J. Evans,
individually.
(5) Includes 128,000 shares held by The Claudia Morse Evans Family Trust for
which Mr. Cartagena is a Trustee and 5,866 shares held by Robert J.
Cartagena, individually.
(6) Maurice A. Halperin owns 362,581 of such shares and Barry S. Halperin,
his son, owns 222,451 of such shares. Messrs. Halperin share voting and
dispositive power with respect to the shares of Common Stock owned by each
other. The information with respect to this group is based solely on
Schedule 13D, as amended, as of August 13, 1996.
(7) Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL LENDER - CV REIT
The Company commenced operations on July 31, 1992, with the acquisition of
certain assets from Development, pursuant to approval by the Bankruptcy Court
of the Southern District of
53
<PAGE> 150
Florida of a Proposal for the Acquisition of Certain Assets. The assets
(principally those assets at Century Village at Pembroke Pines, "Century
Village"), were acquired subject to indebtedness due to CV Reit, currently the
Company's major lender. As of July 31, 1996, the outstanding balance of the
Company's indebtedness to CV Reit was approximately $45.3 million, comprised of
a $25 million term loan ("Term Loan"), $13.4 million under lines of credit
("Lines of Credit"), with an aggregate commitment of $15 million, and $6.9
million in certain other loans.
The Term Loan and $7.5 million of the Lines of Credit bear interest, payable
monthly, at prime plus 3%, but in any event not less than 9% nor more than 11%,
and mature on July 31, 1998, except as described below with respect to the
conversion of the Term Loan. The remaining $7.5 million of the Lines of Credit
bears interest, payable monthly, at 12.5% ($2.5 million), at 12% ($2 million),
or at prime plus 3%, with a floor of 11% ($3 million), of which $2 million
matures on November 30, 1996, $2 million matures on February 28, 1997 and $3.5
million on May 31, 1997. Specific release prices for the collateral are
required as permanent reductions of the Lines of Credit. The Term Loan and the
Lines of Credit are collateralized by all major assets of the Company.
By July 31, 1998, the Term Loan is scheduled to be converted to an 11%, fixed
rate, 25 year self-amortizing $25 million loan providing for equal monthly
payments of principal and interest (the "Permanent Loan"). The Permanent Loan
may not be prepaid without incurring a prepayment penalty equal to the greater
of 5% of the amount prepaid or an amount determined pursuant to a formula based
upon the yield of certain U.S. Treasury Issues.
CONSULTING AND ADVISORY AGREEMENT WITH CV REIT
Pursuant to a consulting and advisory agreement between the Company and CV
Reit, the Company provides certain investment advisory, consulting and
administrative services to CV Reit, including: investigating and evaluating
investment opportunities; conducting negotiations with existing and potential
borrowers and lenders; negotiating with investment bankers in connection with
the sale of securities of CV Reit; administering compliance by CV Reit with the
provisions of its loan agreements; consulting with respect to the preparation
of required reports to the New York Stock Exchange and the Securities and
Exchange Commission; supervising the prosecution of claims by CV Reit against
third parties and supervising the defense of claims made against CV Reit. The
agreement specifically excludes matters related to the Company's loans from CV
Reit. The agreement, which originally expired on July 31, 1994, was recently
extended to July 31, 1997, provides for the payment of $10,000 per month to the
Company, plus reimbursement for all out-of-pocket expenses, and may be
terminated by the Company upon 180 days notice and by CV Reit upon 30 days
notice. Certain officers of the Company, including Mr. Levy, perform services
for CV Reit under the agreement. To the extent that such
54
<PAGE> 151
services interfere with their duties to the Company, the Company will provide
alternative personnel to fulfill its contractual obligations to CV Reit.
Mr. Levy, the Chairman and Chief Executive Officer and a principal stockholder
of the Company, is also a principal stockholder and was formerly Chairman of
the Board of Directors of CV Reit. Messrs. Jaiven and Rubin were also
previously officers of, and Mr. Weingard was a director of, CV Reit.
OTHER TRANSACTIONS WITH CV REIT
The Company leases approximately 1,500 square feet of office space from CV Reit
in West Palm Beach at a monthly rental of $1,100.
The Company intends to resolve any conflicts which may arise between the
Company and CV Reit by referring such conflicts to an independent committee of
its Board of Directors. Since Mr. Levy is both a director of the Company and a
principal stockholder of CV Reit, Mr. Levy would not serve on any such
committee.
CENVILL RECREATION
Cenvill Recreation consists of a group of companies owned, in various
percentages, by Mr. Levy and his family. The Company receives approximately
$500 per month for Cenvill Recreation's occupancy of approximately 1,600 square
feet in the Company owned Administration Building located at the Century
Village in Boca Raton.
H. IRWIN LEVY
The Company and Mr. Levy have entered into an unsecured revolving credit
agreement allowing the Company to borrow up to $750,000 from Mr. Levy through
May 1, 1997, as extended. Any borrowings under this credit agreement bear
interest, payable monthly, at prime plus 1/2%. As of July 31, 1996 there were
no amounts outstanding under this agreement.
OTHER TRANSACTIONS
During the fiscal year ended July 31, 1996, the Company incurred legal fees,
including reimbursement of certain costs, of $125,271 to the law firm of Levy,
Kneen, Mariani, Curtin, Wiener, Kornfeld & del Russo. H. Irwin Levy is
currently of counsel to this firm.
55
<PAGE> 152
The Company believes that the terms of all of the transactions described above
are fair and reasonable and as favorable to it as could be obtained from
unaffiliated third parties.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with each of its
directors and executive officers providing for indemnification to the fullest
extent permitted by law.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) (1) List of Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - July 31, 1996 and 1995
Consolidated Statements of Operations -
Years Ended July 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity -
Years Ended July 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -
Years Ended July 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) List of Consolidated Financial Statement Schedules:
None
(3) List of Exhibits:
56
<PAGE> 153
(3)(i) Restated Certificate of Incorporation of Hilcoast Development Corp.
(Incorporated by reference to Exhibit 3(a) to Form 10 Registration
Statement as filed with the Commission on August 12, 1992.)
(3)(ii) Certificate of Amendment to Certificate of Incorporation of Hilcoast
Development Corp., approved by stockholders on December 18, 1995 and
filed with the State of Delaware on January 22, 1996. (Incorporated
by reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q of
the Company for the quarter ended January 31, 1995.)
(3)(iii) Certificate of Amendment to Certificate of Incorporation of Hilcoast
Development Corp., filed with Secretary of State of Delaware on
September 24, 1992. (Incorporated by reference to Exhibit 3(c) to
Amendment No.1 to Form S-1 Registration Statement.)
(3)(iv) By-Laws of Hilcoast Development Corp. (Incorporated by reference to
Exhibit 3(b) to Form 10 Registration Statement as filed with the
Commission on August 12, 1992.)
(4)(i) Specimen Common Stock Certificate of Hilcoast Development Corp.
(Incorporated by reference to Exhibit 4(a) to Form 10 Registration
Statement as filed with the Commission on August 12, 1992.)
(10)(i) Consulting and Advisory Agreement, dated July 31, 1992, between CV
Reit, Inc. and Hilcoast Development Corp. (Incorporated by reference
to Exhibit 10(a) to Form 10 Registration Statement as filed with the
Commission on August 12, 1992.)
(10)(ii) Restated Loan Agreement, dated July 31, 1992, between CV Reit, Inc.
and Cenvill Development Corp. and certain subsidiaries and
affiliates thereof. (Incorporated by reference to Exhibit 10(b) to
Form 10 Registration Statement as filed with the Commission on
August 12, 1992.)
(10)(iii) Loan Agreement, dated June 6, 1991, between CV Reit, Inc. and
Cenvill Development Corp. and certain subsidiaries and affiliates
thereof. (Incorporated by reference to Exhibit (10)(iii) to the
Annual Report on Form 10-K of the Company for the fiscal year ended
July 31, 1993.)
(10)(iv) Revolving Credit and Term Loan Agreement, dated July 3, 1990,
between CV Reit, Inc., Cenvill Development Corp. and certain
subsidiaries and affiliates thereof. (Incorporated by reference to
Exhibit (10)(v) to the Annual Report on Form 10-K of the Company for
the fiscal year ended July 31, 1993.)
57
<PAGE> 154
(10)(v) 1992 Stock Option Plan of Hilcoast Development Corp. (Incorporated
by reference to Exhibit 10(j) to Form 10 Registration Statement as
filed with the Commission on August 12, 1992.)
(10)(vi) Proposal for the Acquisition of Certain Assets, dated June 19, 1992,
by and among CV Reit, Inc., Cenvill Development Corp. and certain
subsidiaries and affiliates thereof. (Incorporated by reference to
Exhibit 10(k) to Form 10 Registration Statement as filed with the
Commission on August 12, 1992.)
(10)(vii) Order granting Motion of Debtor's [sic] for Approval of Sale of
Assets dated July 17, 1992. (Incorporated by reference to Exhibit
10(l) to Form 10 Registration Statement as filed with the Commission
on August 12, 1992.)
(10)(viii) $1.35 million Promissory Note, dated August 27, 1993, from NewCen
Communities, Inc. to CV Reit, Inc.; Mortgage Deed securing such
Note; Addendum to Mortgage Deed and side letter between NewCen
Communities, Inc. and CV Reit, Inc. (Incorporated by reference to
Exhibit (10)(xiv) to the Annual Report on Form 10-K of the Company
for the fiscal year ended July 31, 1993.)
(10)(ix) $3.0 million Promissory Note, dated September 30, 1993, from NewCen
Communities, Inc. to CV Reit, Inc.; Mortgage Deed securing such
Note; Rider to Mortgage Deed and side letter between NewCen
Communities, Inc. and CV Reit, Inc. (Incorporated by reference to
Exhibit (10)(xv) to the Annual Report on Form 10-K of the Company
for the fiscal year ended July 31, 1993.)
(10)(x) Form of Indemnification Agreement between Hilcoast Development Corp.
and each of its Directors and Executive Officers. (Incorporated by
reference to Exhibit 10(u) to Form 10 Registration Statement as
filed with the Commission on August 12, 1992.)
(10)(xi) Employment Letters, each dated September 18, 1992, between Hilcoast
Development Corp. and each of its Executive Officers, Michael S.
Rubin, Jack Jaiven, Harold Cohen, Michael A. Rich, James A. Geddes
and Antoinette Gleeson. (Incorporated by reference to Exhibit 10(w)
to Form 10 Registration Statement as filed with the Commission on
August 12, 1992.)
(10)(xii) $2.5 million Future Advance Promissory Note, dated as of September
15, 1994, from NewCen Communities, Inc. to CV Reit, Inc.; Notice and
Agreement of Future Advance and side letter between NewCen
Communities, Inc.
58
<PAGE> 155
and CV Reit, Inc. (Incorporated by reference to Exhibit 10(xxviii)
to the Annual Report on Form 10-K of the Company for the fiscal year
ended July 31, 1994.)
(10)(xiii) $750,000 Promissory Note, dated as of September 15, 1994, from
NewCen Communities, Inc. to H. Irwin Levy and side letter between
NewCen Communities, Inc. and H. Irwin Levy. (Incorporated by
reference to Exhibit 10(xxix) to the Annual Report on Form 10-K of
the Company for the fiscal year ended July 31, 1994.)
(10)(xiv) Agreement to Sell Real Estate, dated July 14, 1993, First Amendment
to Agreement to Sell Real Estate dated August 2, 1993, between
NewCen East, Inc. and Tract F Land, Inc., and Assignment of these
agreements from NewCen East, Inc. to NewCen Communities, Inc., dated
August 3, 1993. (Incorporated by reference to Exhibit (10)(xxvii) to
the Annual Report on Form 10-K of the Company for the fiscal year
ended July 31, 1993.)
(10)(xv) Letter Agreement, dated February 6, 1995, from CV Reit, Inc. to
NewCen Communities, Inc. extending the maturity date of the
following note to July 31, 1996: $2.5 million Future Advance
Promissory Note dated September 15, 1994 from NewCen Communities,
Inc. in favor of CV Reit, Inc. (Incorporated by reference to Exhibit
10(i) to the Quarterly Report on Form 10-Q of the Company for the
quarter ended January 31, 1995.)
(10)(xvi) Letter Agreement, dated February 6, 1995, from CV Reit, Inc. to
NewCen Communities, Inc., extending the maturity date of the
following note, as previously extended, to December 31, 1996: $3
million Promissory Note dated September 30, 1993 from NewCen
Communities, Inc. in favor of CV Reit, Inc., as extended by certain
letter agreement dated September 30, 1994. (Incorporated by
reference to Exhibit 10(ii) to the Quarterly Report on Form 10-Q of
the Company for the quarter ended January 31, 1995.)
(10)(xvii) Letter Agreement, dated February 17, 1995, between NewCen
Communities, Inc. and CV Reit, Inc., advancing an additional $2
million under the existing Construction Loan. (that certain
Promissory Note in the original principal amount of $3 million dated
September 30, 1993 from NewCen Communities, Inc. in favor of CV
Reit, Inc.). (Incorporated by reference to Exhibit 10(i) to the
quarterly report on Form 10-Q of the Company for the quarter ended
April 30, 1995.)
(10)(xviii) $5 million Promissory Note, dated March 31, 1995, from C.V.P.
Community Center, Inc. to Hilcoast Development Corp. and Mortgage
Deed securing such Note.
59
<PAGE> 156
(Incorporated by reference to Exhibit 10(ii) to the quarterly report
on Form 10-Q of the Company for the quarter ended April 30, 1995.)
(10)(xix) Allonge, dated March 31, 1995, which assigns the $5 million
Promissory Note, dated March 31, 1995, from Hilcoast Development
Corp. to CV Reit, Inc. (Incorporated by reference to Exhibit
10(iii) to the quarterly report on Form 10-Q of the Company for the
quarter ended April 30, 1995.)
(10)(xx) Extension Agreement, dated April 28, 1995, extending the maturity
date of the following Note to May 1, 1996: $750,000 Promissory
Note, dated September 15, 1994, from NewCen Communities, Inc. to H.
Irwin Levy. (Incorporated by reference to Exhibit 10(iv) to the
quarterly report on Form 10-Q of the Company for the quarter ended
April 30, 1995.)
(10)(xxi) Second Extension Agreement, dated May 1, 1996, extending the
maturity date of the following Note to May 1, 1997: $750,000
Promissory Note, dated September 15, 1994, from NewCen Communities,
Inc. to H. Irwin Levy. (Incorporated by reference to Exhibit 10(i)
to the quarterly report on Form 10-Q of the Company for the quarter
ended April 30, 1996.)
(10)(xxii) $4 million Promissory Note dated August 11, 1995, from NewCen
Communities, Inc. to CV Reit, Inc., Mortgage Securing such Note and
side letters between NewCen Communities, Inc. and CV Reit, Inc.
(10)(xxiii) Letter Agreement dated August 11, 1995, from CV Reit, Inc. to NewCen
Communities, Inc. extending the maturity date of the following Note
to May 31, 1997: $3 million Promissory Note dated September 30,
1993 from NewCen Communities, Inc. in favor of CV Reit, Inc.
(10)(xxiv) Letter Agreement dated August 11, 1995 from CV Reit, Inc. to NewCen
Communities, Inc. extending the maturity date of the following Note
to May 31, 1997: $2.5 million Future Advance Promissory Note dated
September 15, 1994 from NewCen Communities, Inc. to CV Reit, Inc.
(10)(xxv) Letter Agreements between Hilcoast Advisory Services, Inc. and CV
Reit, Inc., dated July 11, 1994 and August 3, 1995, extending the
Consulting and Advisory Agreement to July 31, 1995 and July 31,
1996, respectively.
60
<PAGE> 157
(10)(xxvi) Letter Agreement between Hilcoast Advisory Services, Inc. and CV
Reit, Inc., dated July 12, 1996, extending the Consulting and
Advisory Agreement to July 31, 1997.
(10)(xxvii) 1995 Stock Option Plan of Hilcoast Development Corp. (Incorporated
by reference to the Company's 1995 Definitive Proxy Statement.)
(10)(xxviii) Letter from H. Irwin Levy to the Board of Directors, dated August
9, 1996, contemplating a merger of the Company and a newly formed
acquisition company to be organized by Mr. Levy, pursuant to which
each of the Company's outstanding shares of Common Stock (other
than those held by Mr. Levy's acquisition corporation) would be
converted into $6.00 cash.
(11) Statement Regarding Computation of Earnings Per Share
(21) Subsidiaries of Hilcoast Development Corp.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended July 31,
1996.
61
<PAGE> 158
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exhange
Act of 1934, this report has been signed below by the following person on
behalf of the Registrant and in the capacity and on the date indicated.
HILCOAST DEVELOPENT CORP.
Nov. 12, 1996 By: /s/ Jack Jaiven
-------------------------------------------
Jack Jaiven, Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Nov. 12, 1996 By: /s/ H. Irwin Levy
-------------------------------------------
H. Irwin Levy, Chairman of the Board
of Directors (Chief Executive Officer)
Nov. 12, 1996 By: /s/ Michael S. Rubin
-------------------------------------------
Michael S. Rubin, President and Director
(Principal Executive Officer)
62
<PAGE> 159
Nov. 12, 1996 By: /s/ Jack Jaiven
---------------------------------------
Jack Jaiven, Executive Vice President
and Director (Principal Financial
Officer and Principal Accounting
Officer)
Nov. 12, 1996 By: /s/ Bernard R. Green
---------------------------------------
Bernard R. Green, Director
Nov. 12, 1996 By: /s/ Joseph D. Weingard
---------------------------------------
Joseph D. Weingard, Director
63
<PAGE> 160
EXHIBIT E
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 0-20530
-------
HILCOAST DEVELOPMENT CORP.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0346040
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
19146 Lyons Road, Boca Raton, Florida 33434
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 407-487-9630
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
<PAGE> 161
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein have been prepared by the
registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been consolidated or omitted
pursuant to such rules and regulations; however, the registrant believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1996.
The consolidated financial statements for the interim periods included herein,
which are unaudited, include, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position and results of operations of the registrant for the periods
presented. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
2
<PAGE> 162
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Oct.30, Jul.31,
ASSETS (Note 3) 1996 1996
---------------- ----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
Cash:
Unrestricted $ 57 $ 21
Restricted 740 773
Inventories and properties held
for development and sale (Note 2) 29,428 30,234
Property and equipment, net of
accumulated depreciation 19,380 19,754
Prepayments and other assets 2,847 2,813
------- -------
$52,452 $53,595
======= =======
LIABILITIES
-----------
Borrowings (Note 3) $43,344 $45,348
Accounts payable, accruals and
other liabilities 4,802 3,993
Deposits, principally from customers 1,965 2,033
Deferred income taxes 430 386
------- -------
Total liabilities 50,541 51,760
------- -------
Contingencies (Note 5)
STOCKHOLDERS' EQUITY
--------------------
Common Stock; $.01 par; shares authorized
6,000,000; outstanding 2,362,320 24 24
Additional paid-in capital 2,481 2,481
Deficit (594) (670)
------- -------
Total stockholders' equity 1,911 1,835
------- -------
$52,452 $53,595
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 163
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------
1996 1995
Revenues: ---------- ----------
<S> <C> <C>
Sales:
Condominium apartments $ 8,529 $ 7,705
Land and other 40 114
Recreation and maintenance fees 2,179 1,999
Other (Note 4) 663 628
---------- ----------
11,411 10,446
Expenses: ---------- ----------
Cost of sales:
Condominium apartments 6,934 6,792
Land and other 30 88
Operating costs 1,865 1,701
Interest:
Incurred 1,211 1,349
Capitalized (627) (772)
Depreciation 341 317
Selling and marketing 1,079 899
General and administrative 457 435
---------- ----------
11,290 10,809
---------- ----------
Income (loss) before income taxes 121 (363)
Income tax expense (benefit) 45 (137)
---------- ----------
Net income (loss) $ 76 $ (226)
========== ==========
Net income (loss) per common share:
Primary and fully diluted $ .03 $ (.09)
========== ==========
Average common shares considered
outstanding:
Primary and fully diluted 2,362,320 2,362,320
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 164
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In
Stock Capital Deficit
------ ---------- -------
<S> <C> <C> <C>
Balance, July 31, 1996 $24 $2,481 $(670)
Net income for the quarter
ended October 31, 1996 - - 76
--- ------ -----
Balance, October 31, 1996 $24 $2,481 $(594)
=== ====== =====
</TABLE>
See accompanying notes to consolidated statements.
5
<PAGE> 165
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 76 $( 226)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 341 317
Deferred income tax expense (benefit) 44 (141)
Changes in assets and liabilities:
Decrease in inventories and properties
held for development and sale 867 1,025
Decrease (increase) in restricted cash 33 (244)
Increase in prepayments and other assets (34) (31)
Increase in accounts payable, accruals
and other liabilities 809 143
(Decrease) increase in deposits (68) 203
------ ------
Net cash provided by operating activities 2,068 1,046
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (28) (150)
------ ------
Net cash used by investing activities (28) (150)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,805 6,133
Repayments on borrowings (5,809) (6,947)
------ ------
Net cash used by financing activities (2,004) (814)
------ ------
Net decrease in unrestricted cash during period 36 82
Unrestricted cash at beginning of period 21 46
------ ------
Unrestricted cash at end of period $ 57 $ 128
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,233 $1,352
====== ======
Income taxes $ - $ 94
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 166
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS
Hilcoast Development Corp. (the "Company") is engaged in the design,
development, construction, marketing and sale of condominium apartments at
Century Village at Pembroke Pines ("Century Village"), an adult condominium
project in southeast Florida, the operation of the recreation facilities located
at the project ("Recreation Facilities") and certain other real estate related
businesses.
The Company is also engaged in the development and sale of single family
homesites in a golf course community known as Glen Abbey in Volusia County,
Florida.
(2) INVENTORIES AND PROPERTIES HELD FOR DEVELOPMENT AND SALE
Inventories and properties held for development and sale consist of the
following (in thousands):
<TABLE>
<CAPTION>
Oct. 31, July 31,
1996 1996
------- --------
<S> <C> <C>
Century Village:
Land under development for
condominium buildings $10,189 $11,499
Condominium buildings completed
or under construction 14,575 14,197
Unamortized capitalized interest 1,917 1,972
------- -------
26,681 27,668
Land under development, Volusia
County, Florida (Glen Abbey),
including unamortized capital-
ized interest of $638 and $586 2,747 2,566
------- -------
$29,428 $30,234
======= =======
</TABLE>
Substantially all inventories and properties held for development and sale are
pledged as collateral for indebtedness (Note 3).
7
<PAGE> 167
(3) BORROWINGS
Borrowings, substantially consisting of mortgage notes col-lateralized by all
major assets of the Company, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Oct. 31, July 31,
1996 1996
-------- --------
<S> <C> <C>
Mortgage notes payable to CV Reit,
Inc. ("CV Reit") (Note 3(a)):
Term Loan $25,000 $25,000
Lines of Credit 11,680 13,415
Preferred Stock Redemption Note 5,000 5,000
Land Acquisition Note 322 564
Glen Abbey Note 1,308 1,320
Other 34 49
------- -------
$43,344 $45,348
======= =======
</TABLE>
(A) CV REIT
TERM LOAN/LINES OF CREDIT
At October 31, 1996, the Company's borrowings from CV Reit primarily consisted
of a term loan (the "Term Loan") and $15 million revolving lines of credit (the
"Lines of Credit"). The Term Loan and $7.5 million of the Lines of Credit bear
interest, payable monthly, at prime (8.25% at October 31, 1996) plus 3%, but in
any event not less than 9% nor more than 11%, and mature on July 31, 1998,
except as described below with respect to the conversion of the Term Loan. The
remaining $7.5 million of the Lines of Credit bears interest, payable monthly,
as follows: (i) $3 million at prime plus 3%, with a floor of 11%, which
matures on May 31, 1997; (ii) $2.5 million at 12.5% of which $2 million
matures on February 28, 1997 and $.5 million on May 31, 1997; and (iii) $2
million at 12% which matured on November 30, 1996. The Term Loan and the
Lines of Credit are collateralized by all major assets of the Company. The
amount of available funds under the Lines of Credit is limited based upon
available collateral, as defined. Specific release prices, principally for the
condominium apartments at Century Village, are required to be applied as
permanent reductions of the Lines of Credit.
Upon the earlier to occur of delivery of the last unit at Century Village or
July 31, 1998, the Term Loan will be converted to a $25 million, 11%, 25 year
self-amortizing loan providing for equal monthly payments of principal and
interest (the "Permanent Loan"). The Permanent Loan will be collateralized by
a first mortgage on the Recreation Facilities and may not be prepaid without
incurring
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a prepayment penalty equal to the greater of 5% of the amount prepaid or an
amount determined pursuant to a formula based upon the yield of certain U.S.
Treasury Issues.
Until the Permanent Loan is satisfied in full, the wholly-owned subsidiary of
the Company which owns the Recreation Facilities will not be permitted to incur
or guarantee additional debt financing, except for that related to the operation
of the Recreation Facilities.
OTHER
Other borrowings consist of approximately $6.6 million in mortgage notes, which
bear interest, generally payable quarterly, at rates ranging from 10% to 12% and
which are collateralized by the Recreation Facilities and certain land under
development. These notes mature principally during fiscal 1998 and include $1.6
million which requires principal payments based upon specific release prices of
condominium apartments or homesites delivered.
LETTERS OF CREDIT
At October 31, 1996, there was approximately $65,000 outstanding in letters of
credit issued by CV Reit to municipalities in connection with certain of the
Company's development requirements at Century Village. In addition, a $1.5
million letter of credit has been issued by a bank for the benefit of the State
of Florida, guaranteed by CV Reit, which allows the Company to utilize up to
that amount of customer deposits previously required to be held in restricted
escrow account.
(B) LEVY NOTE
The Company and H. Irwin Levy have entered into an unsecured revolving credit
agreement ("Levy Note") allowing the Company to borrow up to $750,000 from Mr.
Levy in the event the Company's availability under the CV Reit Lines of Credit
does not exceed $50,000. The Levy Note bears interest, payable monthly, at
prime plus 1/2% and matures on May 1, 1997, as extended.
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<PAGE> 169
(4) OTHER REVENUES
Other revenues consist of the following (in thousands):
<TABLE>
<CAPTION>
Three
Months Ended
October 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Real estate brokerage $ 196 $ 227
Golf course operations 174 161
Title insurance agency 123 83
Social program activities 70 63
Consulting fees (a) 53 47
Other 47 47
------ ------
$ 663 $ 628
====== ======
</TABLE>
________
(a) Principally in connection with a consulting and advisory agreement under
which the Company provides investment, advisory, consulting and
administrative services to CV Reit, excluding matters related to the
Company's indebtedness to CV Reit. The agreement, which originally
expired on July 31, 1994, has been extended to July 31, 1997, provides for
payment of monthly fees of $10,000 plus reimbursement of out of pocket
expenses, and may be terminated upon 180 days notice by the Company and
upon 30 days notice by CV Reit.
(5) CONTINGENCIES
See Part II, Item 1 for a discussion of the Company's legal proceedings.
(6) PROPOSED MERGER
On August 9, 1996, the Company's Board of Directors received an unsolicited
proposal from H. Irwin Levy, the Company's Chairman of the Board and Chief
Executive Officer, contemplating a merger of the Company and a newly formed
acquisition company to be organized by Mr. Levy, pursuant to which each of the
Company's outstanding shares of common stock would be converted into $6.00 in
cash ("Merger Consideration"). A special independent committee of the
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<PAGE> 170
Board was appointed to consider the proposal and in connection therewith,
engaged Patricof & Co. Capital Corp. ("Patricof"), an investment banking firm as
its financial advisor.
On November 12, 1996, Patricof delivered its oral opinion to the special
committee and the Board to the effect that the Merger Consideration is fair to
the Company's public shareholders from a financial point of view. On that date,
the special committee and Board approved the terms of the Merger Agreement and
recommended that the shareholders approve and adopt such agreement. The parties
have executed the Merger Agreement. The proposed merger is subject to approval
by the Company's shareholders and a number of other material conditions,
including compliance with all applicable regulatory and governmental
requirements. Accordingly, there can be no assurance that the proposed merger
will be consummated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's primary source of revenues is the design, development,
construction, marketing and sale of condominium apartments at the Century
Village at Pembroke Pines ("Century Village"), an adult condominium project in
southeast Florida, and the operation of the recreation facilities located at the
project ("Recreation Facilities"). Significant information pertaining to
deliveries of condominium apartments at Century Village is presented below.
<TABLE>
<CAPTION>
Deliveries - Three Months Ended October 31,
--------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
Number Average Number Average
of Units Revenues Sales Gross of Units Revenues Sales Gross
Delivered (000's) Price Margin Delivered (000's) Price Margin
--------- -------- ------- ------ --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
107 $8,529 $79,700 19% 100 $7,705 $77,100 12%
</TABLE>
Revenues from sales of condominium apartments are recognized only upon the
closing (delivery) of the sales contract. Fluctuations in
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<PAGE> 171
average sales prices and gross margins at Century Village are generally a
function of the location of condominium buildings (e.g. lakefront) and to a
lesser extent, the mix of condominium apartments within the building.
A comparison of the Company's inventories and backlog (under contract for sale
but not yet delivered) at Century Village follows:
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
----------------------- -----------------------
Number of Number of
Condominium Apartments Condominium Apartments
----------------------- -----------------------
Completed Completed
or Under or Under
Construction Backlog Construction Backlog
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Completed but not
yet delivered 106 66 59 20
Under construction 656 124 731 204
--- --- --- ---
762 190 790 224
=== === === ===
Aggregate sales
value (000's) $15,228 $17,013
Average sales price $80,100 $76,000
</TABLE>
RESULTS OF OPERATIONS
For the three months ended October 31, 1996, the Company reported net income of
$76,000, on total revenues of $11.4 million, as compared to a net loss of
$226,000 on revenues of $10.4 million for the corresponding period ended October
31, 1995. The increase in net income was principally due to a 7% higher gross
margin (sales revenues less cost of sales, as a percentage of sales).
The increase in gross margin reflects higher average per unit sales prices of
$2,600, primarily attributable to the delivery of a greater number of units
located in lakefront buildings and lower per unit land costs for certain units
delivered. Based upon the 190 sales contracts in backlog for Century Village at
October 31, 1996, a significant portion of which are expected to be delivered
within the next nine months, the Company anticipates a slight increase in
average per unit sales prices which is expected to be substantially offset by an
increase in the average per unit cost of
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<PAGE> 172
sales. Accordingly, the Company does not expect a significant change in the
gross margin for the remainder of fiscal 1997.
For the first quarter of fiscal 1997, the Company entered into 70 new sales
contracts (net of cancellations) at Century Village with an aggregate sales
value of $5.4 million and an average sales price of $77,600. During the
corresponding period in fiscal 1996, there were 105 new sales contracts with an
aggregate sales value of $7.9 million and an average sales price of $75,400.
Management believes that the decline in the Company's sales activity is
attributable to a number of reasons which include an overall general decline in
sales orders in the residential real estate market and an increase in the
average prices of units being offered for sale at Century Village. The Company
cannot predict whether the decline in sales activity will continue.
For the quarters ended October 31, 1996 and 1995, recreation and maintenance
fees were $2.2 million and $2 million, respectively, consisting of $1.6 million
and $1.4 million, respectively, of revenues pursuant to long-term leases
("Recreation Leases") of the Recreation Facilities with owners of 7,018 Century
Village condominium apartments delivered through October 31, 1996, and $.6
million of revenues during each quarter from master management agreements under
which the Company provides certain maintenance and community services. These
revenues will continue to increase annually principally due to future deliveries
of condominium apartments and specified contractual increases in monthly fees in
accordance with the Recreation Leases. The Recreation Leases and the master
management agreements provide that increases and decreases in operating costs
are passed through to the unit owners, subject to a guaranteed rate generally
for three years.
Other revenues increased slightly during the quarter ended October 31, 1996 and
principally consisted of revenues from the golf course operations at Century
Village, real estate brokerage commissions at the four Century Village
communities in southeast Florida, social program activities at the Recreation
Facilities and title insurance agency services principally provided on sales at
Century Village (see Note 4 to Consolidated Financial Statements). Other
revenues are expected to increase during the second and third quarters of
fiscal 1997 due to increased use of the golf course and greater participation
in social activities during the winter season.
Operating costs for the three month periods ended October 31, 1996 and 1995
were $1.9 million and $1.7 million, respectively, and consisted principally of
costs incurred for the operation of the Recreation Facilities, the master
management agreements, and the ancillary operations noted above. Operating
cost increases, if any, related to the Recreation Facilities and master
management agreements are passed through to unit owners at Century Village in
the form of increased recreation and maintenance fees, subject to the
aforementioned three year guarantee. The increase in operating
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<PAGE> 173
costs during the current quarter is primarily the result of the opening of Club
Health, a 12,000 square foot health club which is part of the Recreation
Facilities, in August 1996. Operating costs are expected to increase during the
second and third quarters of fiscal 1997 due to increased seasonal activities.
Interest incurred for the quarters ended October 31, 1996 and 1995 was $1.2
million and $1.3 million, respectively. After deducting interest capitalized
principally to real estate inventories at Century Village and Glen Abbey, net
interest expense amounted to $.6 million for each quarter.
During the quarters ended October 31, 1996 and 1995, selling and marketing costs
expensed amounted to approximately $1.1 million and $.9 million, respectively.
Selling and marketing costs incurred are capitalized and amortized to expense as
condominium apartments are delivered at Century Village, based on the average
capitalized cost per apartment sold. Selling and marketing expense is expected
to fluctuate during the remainder of fiscal 1997 based on fluctuations in the
number of sales and deliveries.
General and administrative expenses consist primarily of corporate overhead and
administration of Century Village, and increased slightly during the three
months ended October 31, 1996. During the three months ended October 31, 1996,
the Company expensed approximately $100,000 in professional fees in connection
with the proposed merger (see Note 6 to Consolidated Financial Statements)
which was partially offset by a significant reduction in legal fees incurred in
connection with certain litigation (see Part II, Item 1 - Legal Proceedings).
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended October 31, 1996, the Company generated net cash
flow from operating activities of $2.1 million, as compared to $1 million
during the corresponding period in 1995. The primary source of cash flow was
net reductions in real estate inventories amounting to $.9 million and $1
million, respectively. In addition, during 1996, there was a $.9 million
increase in accounts payable and accruals. As a result of the positive cash
flow from operations, for the three month periods ended in 1996 and 1995, the
Company was able to reduce net borrowings by $2 million and $.8 million,
respectively. Although the Company has been successful in generating positive
cash flow from operating activities, there is no assurance that the Company
will be able to achieve or sustain positive cash flow from operating activities
in the future.
The Company's borrowings at October 31, 1996 amounted to $43.3 million and were
substantially due to CV Reit. See Note 3 to Consolidated Financial Statements
for a description of the
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<PAGE> 174
Company's borrowings. The amount due includes $25 million, presently requiring
monthly interest only payments but scheduled to be converted by July 31, 1998 to
an 11%, 25 year self-amortizing loan providing for equal monthly payments of
principal and interest. Substantially all of the remaining indebtedness ($6.6
million, excluding the lines of credit - see below) matures in fiscal 1998,
including $1.6 million, which requires principal payments based on specific
release prices of condominium apartments or homesites delivered. The Company's
borrowings require interest payments generally on a monthly basis.
The Company's cash flow from operations, net of its construction and other
operating requirements, has not been sufficient to satisfy its payment
obligations required under its borrowings. Consequently, the Company has relied
on borrowings under its lines of credit from CV Reit (the "Lines of Credit" -
see Note 3 to Consolidated Financial Statements). At October 31, 1996,
availability under the Lines of Credit was $15 million, of which $7.5 million
matures during fiscal 1997 and $7.5 million matures in fiscal 1998. The Company
also has a revolving credit agreement with H. Irwin Levy, Chairman of the Board
and Chief Executive Officer of the Company, under which the Company may borrow
up to $750,000 through May 1997 (the "Levy Note" - see Note 3(b) to Consolidated
Financial Statements). At October 31, 1996, the outstanding balance of the
Lines of Credit was $11.7 million and there was no balance outstanding under the
Levy Note. The Company anticipates that funds generated in the ordinary course
of business and availability expected under the Lines of Credit and the Levy
Note will be sufficient to satisfy its cash flow needs.
The amount of available funds under the Lines of Credit is limited based on
available collateral, as defined. At October 31, 1996, the available collateral
exceeded the outstanding balance of the Lines of Credit by approximately $5.1
million. The Company also is restricted from incurring or guaranteeing
additional debt financing under certain circumstances (see Note 3 to
Consolidated Financial Statements). Substantially all the Company's assets are
pledged as collateral for the Company's borrowings.
The Company attempts to minimize its investment in inventory. In addition to
construction of condominium apartments at Century Village and development of
homesites at Glen Abbey, significant capital outlays for amenities and
infrastructure are required in advance of deliveries of apartments and
homesites. The Company has no material commitments for capital expenditures
other than those incurred in connection with its development and construction
activities in the ordinary course of business at Century Village and Glen Abbey.
To complete Century Village, the Company will incur costs in connection with the
remaining 762 apartments to be delivered, including the construction of the
condominium buildings and the remaining Recreation Facilities, and
infrastructure improvements, including the installation of water and sewer
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<PAGE> 175
service, drainage facilities, paving and grading, and landscaping. Substantially
all of the Recreation Facilities have already been completed. At Glen Abbey,
homesite improvements will include water and sewer service, drainage facilities,
and paving and grading.
The Company's current major business activities consist of development and
other real estate related activities principally at Century Village. As of
October 31, 1996, 90% of the planned community had been delivered and 762
condominium apartments remained to be constructed and/or delivered. If the
Company engages in future real estate development activities, it will require
outside financing which may or may not be available. In the event the Company
decides not to engage in any further real estate development activities, its
long-term revenues are anticipated to be generated principally from net
revenues derived under the long-term Recreation Leases, net of the related debt
service requirement, and from earnings on funds expected to be available from
deliveries of Century Village condominium apartments. In that event, the
Company anticipates that its revenues will be sufficient to satisfy its cash
requirements. However, there is no assurance that revenues will be sufficient
for such purposes.
INFLATION
The Company, as well as the home building industry in general, may be adversely
affected during periods of high inflation, primarily because of higher material,
labor and financing costs. In particular, interest rates on a significant
portion of the Company's borrowings are variable, subject to a floor of 9% and a
ceiling of 11%. Increases in the prime rate could result in increased interest
cost to the Company in addition to possible reduced sales activity, potentially
resulting in reduced profitability. The Company may attempt to pass through to
its customers any increases in costs through increased selling prices. However,
this may not always be possible due to competitive factors in the marketplace.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-Q,
that are not related to historical results, are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events which may not prove to be accurate.
These forward looking statements involve risks and uncertainties including but
not limited to the Company's future
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<PAGE> 176
cash flows and liquidity, gross margins, revenues and expenses, the effect of
conditions in the residential real estate market and the economy in general, the
level and volatility of interest rates, as well as certain other risks described
in this report. Subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by cautionary statements in this paragraph and
elsewhere described in this Form 10-Q.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
On September 16, 1993, the Company filed a Complaint in the Circuit Court,
Seventh Judicial Circuit, in and for Volusia County, Florida, seeking
unspecified damages against a utility company, claiming inverse condemnation and
trespass at the Company's Glen Abbey project. On March 18, 1994, the Court
granted a Motion for Summary Judgment holding the defendant liable for trespass
and inverse condemnation. On April 5, 1995, the Court vacated the Summary
Judgment and in February 1996, the Court ruled that the Company is not entitled
to recovery under the theory of inverse condemnation. The trespass claims,
which include a claim for damages caused by flooding, have not been tried and no
trial date has been set. The Company has appealed the Court's decision. If the
Appellate Court reverses the order, the inverse condemnation damages claim would
be remanded to the Circuit Court. The Company also expects to pursue its
trespass claims.
The Company is unable to predict the outcome of its appeal or the amount of
damages, if any, which may be awarded to the Company on either the trespass or
inverse condemnation claims. In addition, any award of damages to the Company
will be subject to appeal by the defendant and, accordingly, there can be no
assurance that the Company will ultimately recover any damages.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
(27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
The Company was not required to file Form 8-K
during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HILCOAST DEVELOPMENT CORP.
-----------------------------
(Registrant)
December 13, 1996 /S/ JACK JAIVEN
---------------------------------
Jack JAIVEN, Executive Vice
President and Principal Financial
and Accounting Officer
18
